Homework #10, Econ 306, Prof. Hanson, Spring 2001.

1. Make up a plausible signaling story to explain each of the following behaviors. For each story, say if it is a separating or pooling equilibrium, what hidden characteristic is signaled, what cost assumption is required, and what we might expect to get too much of:

a. Since at least the middle ages, strangers have had the habit of shaking hands upon meeting one another.

b. In the 1800s, a custom evolved of a man giving an expensive engagement ring to someone who had agreed to marry him.

c. Banks have traditionally been housed in larger more expensive buildings than they really need to do their business.

d. The vocabulary of students becomes more and more specialized and obscure until they get a Ph.D. Then vocabulary, even for those who become professors, becomes more and more ordinary and understandable.