Screening (economics)

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Screening in economics refers to a strategy of combating adverse selection, one of the potential decision-making complications in cases of asymmetric information. The concept of screening is first developed by Spence (1973), and should be distinguished from signalling, which implies that the uninformed agent moves first.

For purposes of screening, asymmetric information cases assume two economic agents--let's call them Abel and Cain--where Abel knows more about himself than Cain knows about Abel. The agents are attempting to engage in some sort of transaction, often invoving a long-term relationship, though that qualifier is not necessary. The "screener" (the one with less information, in this case, Cain) attempts to rectify this asymmetry by learning as much as he can about Abel.

The actual screening process depends on the nature of the scenario, but is usually closely connected with the future relationship .

Examples

Banks will often screen people interested in borrowing money in order to weed out those that won't be able to pay it back. Banks might ask potential borrowers for their financial history, job security, reason for borrowing, assets, education, experience and so on.
Firms use the interview process to engage in screening, using the conversation to learn about the person's personality (by way of mannerisms, attitude and dress) as well as other factors.
The dating and flirting that goes on every day is a form of screening, where people use a large variety of cues to avoid as many undesirable mates as possible.

Screening (economics)

Examples

See also