Signaling Theory: State of the Theory and Its Future

Signaling theory is about decision-making and communication. It describes scenarios where signalers send observable signals that carry credible information about unobservable qualities. When decision-makers have incomplete or imperfect information, signals can help them make better decisions. The power of a signal, though, lies in its cost, with the best signals being highly costly for low-quality signalers and less costly for high-quality signalers. Given the centrality of these ideas in the organizational sciences, we examine management studies that use signaling theory to help explain phenomena that occur within and among organizations. Our review draws attention to how signaling theorists have introduced…