Question

When should default-independent signals be employed?

a. Quality is difficult to convey before the purchase
b. Specific information is available by default
c. Certain conditions require clarification
d. A trial period is offered

Answer 1

Default-independent signals should be employed in situations where specific information is not available by default and certain conditions require clarification. These signals can help to provide reassurance to buyers who are faced with imperfect information about the quality of a product or service.

Step-by-step explanation:

Default-independent signals should be employed in situations where specific information is not available by default and certain conditions require clarification. These signals can help to provide reassurance to buyers who are faced with imperfect information about the quality of a product or service. For example, if a seller offers a trial period for their product, it can serve as a default-independent signal.

This allows buyers to test the product and assess its quality before making a purchase. Another example is when quality is difficult to convey before the purchase, such as with services like legal representation or consulting. In these cases, a seller may provide testimonials or case studies as default-independent signals to assure potential buyers of the high quality of their services.