Alexandros KARAKOSTAS  – Signalling Virtue in Credence goods Markets

Alexandros Karakostas is an Associate Professor at ESSCA School of Management. His research focuses on experimental and behavioral economics, with a particular interest in how social norms influence economic decision-making.

His work has been published in the Journal of Economic Behaviour and Organization, Games and Economic Behavior, Theory and Decision, and Scandinavian Journal of Economics, and has been featured in BBC radio and the Pacific Standard.

Summary of the presentation

Many economic transactions are plagued by asymmetric information and misaligned incentives between two contracting parties. This is particularly true in markets for credence goods, where the buyer is often unable to assess the suitability of a purchased good or service and must rely on an impression regarding the prosocial attitudes of the seller. As sellers who exhibit other-regarding preferences will act in ways that better serve the buyers’ interests, the latter will often look for cues or signals that would allow them to distinguish between other-regarding and self-interested sellers. At the same time, if sellers are aware that signals of moral character are used by buyers as a means of selecting their interaction partners, they will attempt to signal that they care for more than their own self-interest. This generates a virtue signaling environment. We study theoretically how sellers’ past actions in a donation task may act as signals of their moral character in credence goods markets. We derive conditions under which such signals are used by sellers and perceived as credible by buyers, linking signaling behavior to market prices and to market participants’ beliefs and levels of risk aversion. The model’s predictions are tested in a laboratory experiment.

Interested ?! please let me know: Marie Pelé (marie.pele@univ-catholille.fr)