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The answer lies in signaling theory - when you cannot directly observe quality, costly signals become the language of trust. From job markets to dating to product warranties, signals shape every transaction.
Experience why only high-ability workers get degrees in equilibrium.
Worker Type:
Degree costs $40,000 (easy for you)Get Degree?
High-ability: Wage $80,000 - Cost $40,000 = $40,000 net. Better than $30,000 without degree!
Key insight: The same degree costs different amounts to different types. This differential cost is what makes signaling work - it separates the types!
