Research project Many digital environments are characterized by an abundance of information and misinformation, making it difficult for promising small businesses to signal their competences and attract investment. This project studies if and how signaling processes look like under these conditions, using empirical evidence from the cryptocurrency market.
For entrepreneurs, communicating their competencies is crucial to attract the resources they need to grow, and signaling theory describes how this is done. However, the theory assumes that information is reliable and that investors can evaluate any information they receive. This project develops the theory to account for situations where information is not reliable and investors receive so much information that they cannot evaluate it all. It draws on data on cryptocurrencies to empirically develop and test theory.
Riksbanken Jubileumsfond
Signaling theory describes how resource seekers indicate the quality of their hidden attributes to resource holders, and is a fundamental theory of information economics. It is based on the concept of signaling costs, whereby resource seekers who have high-quality hidden attributes use signals that would be prohibitively costly for senders whose attributes are of low quality, allowing resource holders to identify high-quality resource seekers.
However, signaling theory was developed for a non-digitized world, and rests on the assumption that resource holders can identify, perceive, process, and trust signals. Today, we live in a reality where signal receivers are inundated with information inputs and where virtually everything conveyed through digital media can be easily faked. In this world, the concept of signalling costs has proven to be problematic as it can no longer be taken for granted that signals are identified, perceived, processed and trusted. This means that the conceptual foundation of a central mechanism in information economics and many areas of management and economic theory has been eroded. So how does signaling work in a world characterized by information overload and cheap fakes, and what mechanisms make signals relevant to the receiver? In this project, these questions are addressed, with the aim to carry out a much-needed development of signaling theory.
