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The Complete Idiot's Guide to Game Theory by Edward Rosenthal, Ph.D., Edward C. Rosenthal

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Signaling Quality

I just used the term quality as a more general way to connote “productivity” in the job market signaling game. Let’s now depart from the job market and return to the previous intrigue of dubious merchants and used car salesmen.

Selling Lemons

Everyone knows that the moment a new car is driven off the lot it loses a big chunk of its value. Way before the car loses that new car smell, thousands of dollars have vanished, and it’s not immediately clear why.
If all cars were perfect, the facts of car life would surely change. But not all cars are perfect: some are a source of everlasting worry and expense, and we call them lemons.
Nowadays the proportion of lemons is probably quite small. But the fact that they exist will persistently ...

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