[Script Info]
Title: 
[Events]
Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.30,0:00:03.47,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:13.49,0:00:15.34,Default,,0000,0000,0000,,- [Professor Tyler] So how did \Nthe Korean Hyundai
Dialogue: 0,0:00:15.34,0:00:17.13,Default,,0000,0000,0000,,become such an excellent car,
Dialogue: 0,0:00:17.13,0:00:20.09,Default,,0000,0000,0000,,and earn so much success \Nin the marketplace?
Dialogue: 0,0:00:20.09,0:00:21.77,Default,,0000,0000,0000,,Well, let's go back in time.
Dialogue: 0,0:00:21.77,0:00:26.79,Default,,0000,0000,0000,,In 1986, the first Hyundai Excel \Nwas sold in the United States.
Dialogue: 0,0:00:26.79,0:00:30.44,Default,,0000,0000,0000,,It was not entirely attractive,\Nbut it was inexpensive.
Dialogue: 0,0:00:30.44,0:00:33.82,Default,,0000,0000,0000,,The problem though was that\Nit just didn't work that well.
Dialogue: 0,0:00:33.82,0:00:36.28,Default,,0000,0000,0000,,So Hyundais quickly\Ndeveloped a reputation
Dialogue: 0,0:00:36.28,0:00:38.34,Default,,0000,0000,0000,,for being lower quality cars,
Dialogue: 0,0:00:38.34,0:00:42.75,Default,,0000,0000,0000,,and in time, they became the butt\Nof jokes among American consumers.
Dialogue: 0,0:00:42.75,0:00:45.84,Default,,0000,0000,0000,,Jay Leno, who was at that time\Nwas host of the Tonight Show
Dialogue: 0,0:00:45.84,0:00:48.16,Default,,0000,0000,0000,,said that you could double\Nthe value of your Hyundai
Dialogue: 0,0:00:48.16,0:00:50.24,Default,,0000,0000,0000,,by filling it up with gas.
Dialogue: 0,0:00:50.84,0:00:53.02,Default,,0000,0000,0000,,Hyundai wanted\Nto flip this reputation
Dialogue: 0,0:00:53.02,0:00:55.51,Default,,0000,0000,0000,,and compete with the more\Nsuccessful companies,
Dialogue: 0,0:00:55.51,0:00:59.15,Default,,0000,0000,0000,,such as Honda and Toyota, \Nand they managed.
Dialogue: 0,0:00:59.15,0:01:02.57,Default,,0000,0000,0000,,Hyundai decided they would invest \Nin new advanced factories,
Dialogue: 0,0:01:02.57,0:01:05.55,Default,,0000,0000,0000,,in worker training, \Nand in quality control.
Dialogue: 0,0:01:05.55,0:01:09.09,Default,,0000,0000,0000,,This, in turn, would result \Nin much higher quality cars.
Dialogue: 0,0:01:09.56,0:01:11.79,Default,,0000,0000,0000,,But how could Hyundai\Nconvince consumers
Dialogue: 0,0:01:11.79,0:01:13.53,Default,,0000,0000,0000,,of this new higher quality --
Dialogue: 0,0:01:13.53,0:01:16.03,Default,,0000,0000,0000,,quality that was maybe\Ndifficult to see
Dialogue: 0,0:01:16.03,0:01:19.05,Default,,0000,0000,0000,,unless you had owned the car \Nfor a few years already.
Dialogue: 0,0:01:19.66,0:01:22.78,Default,,0000,0000,0000,,Consumers didn't, in fact, \Nusually know what was going on
Dialogue: 0,0:01:22.78,0:01:24.54,Default,,0000,0000,0000,,in Hyundai’s factories.
Dialogue: 0,0:01:24.54,0:01:27.88,Default,,0000,0000,0000,,So again, we have a case \Nof asymmetric information,
Dialogue: 0,0:01:27.88,0:01:31.42,Default,,0000,0000,0000,,where Hyundai knew much more \Nabout the quality of its products
Dialogue: 0,0:01:31.42,0:01:32.88,Default,,0000,0000,0000,,than did consumers.
Dialogue: 0,0:01:33.32,0:01:35.33,Default,,0000,0000,0000,,So what could the company do?
Dialogue: 0,0:01:35.33,0:01:39.48,Default,,0000,0000,0000,,Hyundai rolled out what it called\N"America's Best Warranty."
Dialogue: 0,0:01:39.48,0:01:43.28,Default,,0000,0000,0000,,The warranty assured consumers \Nthat the cars were high quality,
Dialogue: 0,0:01:43.28,0:01:46.43,Default,,0000,0000,0000,,and it got consumers \Nto start buying those cars.
Dialogue: 0,0:01:46.43,0:01:48.08,Default,,0000,0000,0000,,What's great about this idea
Dialogue: 0,0:01:48.08,0:01:51.01,Default,,0000,0000,0000,,is that it doesn't actually cost\NHyundai very much,
Dialogue: 0,0:01:51.01,0:01:53.22,Default,,0000,0000,0000,,because the cars \Nwere in fact high quality
Dialogue: 0,0:01:53.22,0:01:55.55,Default,,0000,0000,0000,,and they didn't need to be\Nfixed all the time.
Dialogue: 0,0:01:56.20,0:02:00.06,Default,,0000,0000,0000,,This Hyundai warranty \Nis an example of a signal.
Dialogue: 0,0:02:00.06,0:02:04.08,Default,,0000,0000,0000,,A signal is an expensive action \Nthat reveals information,
Dialogue: 0,0:02:04.08,0:02:07.36,Default,,0000,0000,0000,,and for it to work, a signal \Nhas to be credible.
Dialogue: 0,0:02:07.36,0:02:11.13,Default,,0000,0000,0000,,In this case, if Hyundai cars \Nwere still unreliable,
Dialogue: 0,0:02:11.13,0:02:13.15,Default,,0000,0000,0000,,such a comprehensive warranty
Dialogue: 0,0:02:13.15,0:02:15.71,Default,,0000,0000,0000,,would have been\Nextremely costly to Hyundai.
Dialogue: 0,0:02:16.20,0:02:18.12,Default,,0000,0000,0000,,Consumers, therefore,\Nbought Hyundais
Dialogue: 0,0:02:18.12,0:02:20.55,Default,,0000,0000,0000,,figuring that if the warranty\Nwere so strong,
Dialogue: 0,0:02:20.55,0:02:24.51,Default,,0000,0000,0000,,well, the company had to have \Na lot of faith in its cars.
Dialogue: 0,0:02:24.51,0:02:28.84,Default,,0000,0000,0000,,So how does a signal help alleviate\Nasymmetric information?
Dialogue: 0,0:02:28.84,0:02:31.43,Default,,0000,0000,0000,,Hyundai knew their cars \Nwere of high quality
Dialogue: 0,0:02:31.43,0:02:33.34,Default,,0000,0000,0000,,but consumers didn't know.
Dialogue: 0,0:02:33.34,0:02:35.52,Default,,0000,0000,0000,,The warranty was a credible signal
Dialogue: 0,0:02:35.52,0:02:38.22,Default,,0000,0000,0000,,that conveyed information\Nto the consumers,
Dialogue: 0,0:02:38.22,0:02:41.63,Default,,0000,0000,0000,,specifically information\Nabout the quality under the hood,
Dialogue: 0,0:02:41.63,0:02:44.77,Default,,0000,0000,0000,,that consumers otherwise \Ncouldn't easily judge.
Dialogue: 0,0:02:44.77,0:02:48.19,Default,,0000,0000,0000,,This signal gave consumers\Nthe information necessary
Dialogue: 0,0:02:48.19,0:02:51.23,Default,,0000,0000,0000,,to have enough confidence \Nto buy a Hyundai.
Dialogue: 0,0:02:51.71,0:02:54.32,Default,,0000,0000,0000,,Indeed, this story\Nhad a happy ending.
Dialogue: 0,0:02:54.80,0:02:57.21,Default,,0000,0000,0000,,So where else \Nmight we see signaling?
Dialogue: 0,0:02:57.21,0:03:00.52,Default,,0000,0000,0000,,Well, let's consider a puzzle \Nin higher education.
Dialogue: 0,0:03:00.52,0:03:03.100,Default,,0000,0000,0000,,If going to college was simply \Nall about learning skills,
Dialogue: 0,0:03:03.100,0:03:06.60,Default,,0000,0000,0000,,then you would expect \Nthat your expected wages
Dialogue: 0,0:03:06.60,0:03:10.58,Default,,0000,0000,0000,,would steadily grow as you completed \Nmore and more classes.
Dialogue: 0,0:03:10.58,0:03:14.15,Default,,0000,0000,0000,,For instance, when you would get \Nhalfway through with your degree,
Dialogue: 0,0:03:14.15,0:03:16.94,Default,,0000,0000,0000,,you would get half\Nof the expected wage increase
Dialogue: 0,0:03:16.94,0:03:18.97,Default,,0000,0000,0000,,from earning the degree.
Dialogue: 0,0:03:18.97,0:03:21.66,Default,,0000,0000,0000,,In each class, you're learning \Nvaluable skills
Dialogue: 0,0:03:21.66,0:03:24.60,Default,,0000,0000,0000,,so your expected wages\Nshould incrementally rise
Dialogue: 0,0:03:24.60,0:03:27.12,Default,,0000,0000,0000,,with each class completed, right?
Dialogue: 0,0:03:27.60,0:03:29.04,Default,,0000,0000,0000,,Well, wrong.
Dialogue: 0,0:03:29.04,0:03:32.52,Default,,0000,0000,0000,,In fact, a large fraction \Nof the value of a degree
Dialogue: 0,0:03:32.52,0:03:36.22,Default,,0000,0000,0000,,comes on the day you earn\Nyour degree, and finish.
Dialogue: 0,0:03:36.22,0:03:38.37,Default,,0000,0000,0000,,So rather than seeing\Na steady increase
Dialogue: 0,0:03:38.37,0:03:41.24,Default,,0000,0000,0000,,in your expected wage\Nas you go through college,
Dialogue: 0,0:03:41.24,0:03:44.60,Default,,0000,0000,0000,,you have a sharp upturn \Nin that wage right at the end.
Dialogue: 0,0:03:44.60,0:03:46.85,Default,,0000,0000,0000,,Again, when you finish.
Dialogue: 0,0:03:46.85,0:03:48.73,Default,,0000,0000,0000,,This is called\Nthe "Sheepskin Effect,"
Dialogue: 0,0:03:48.73,0:03:52.64,Default,,0000,0000,0000,,because diplomas \Nused to be printed on sheepskin.
Dialogue: 0,0:03:52.64,0:03:55.49,Default,,0000,0000,0000,,Additionally, we see people\Nwho receive a degree in,
Dialogue: 0,0:03:55.49,0:03:56.72,Default,,0000,0000,0000,,say, Art History,
Dialogue: 0,0:03:56.72,0:03:59.54,Default,,0000,0000,0000,,and they take jobs that maybe \Nhave little or nothing to do
Dialogue: 0,0:03:59.54,0:04:01.71,Default,,0000,0000,0000,,with the history of art.
Dialogue: 0,0:04:01.71,0:04:03.68,Default,,0000,0000,0000,,Yet these people\Nreceive higher wages
Dialogue: 0,0:04:03.68,0:04:06.56,Default,,0000,0000,0000,,than those without\Na degree altogether.
Dialogue: 0,0:04:06.56,0:04:07.58,Default,,0000,0000,0000,,Why?
Dialogue: 0,0:04:07.58,0:04:11.24,Default,,0000,0000,0000,,Well, the learning of art history\Nmay not be applicable to the jobs,
Dialogue: 0,0:04:11.24,0:04:14.46,Default,,0000,0000,0000,,but it shows those people \Nhave some kind of talent.
Dialogue: 0,0:04:15.09,0:04:17.08,Default,,0000,0000,0000,,The signaling theory of education --
Dialogue: 0,0:04:17.08,0:04:19.55,Default,,0000,0000,0000,,from Nobel Prize winner\NMichael Spence --
Dialogue: 0,0:04:19.55,0:04:21.60,Default,,0000,0000,0000,,is that education is valuable,
Dialogue: 0,0:04:21.60,0:04:23.97,Default,,0000,0000,0000,,not only because\Nit teaches us things,
Dialogue: 0,0:04:23.97,0:04:27.06,Default,,0000,0000,0000,,but also because it signals\Nworker quality.
Dialogue: 0,0:04:27.59,0:04:29.18,Default,,0000,0000,0000,,There’s asymmetric information
Dialogue: 0,0:04:29.18,0:04:32.39,Default,,0000,0000,0000,,between an employee\Nand a potential employer.
Dialogue: 0,0:04:32.39,0:04:35.16,Default,,0000,0000,0000,,The employer doesn't know\Nhow smart, determined,
Dialogue: 0,0:04:35.16,0:04:37.59,Default,,0000,0000,0000,,or conscientious you might be.
Dialogue: 0,0:04:37.59,0:04:40.62,Default,,0000,0000,0000,,A degree provides \Na credible signal of these traits
Dialogue: 0,0:04:40.62,0:04:42.88,Default,,0000,0000,0000,,and gives employers\Nmore information
Dialogue: 0,0:04:42.88,0:04:44.65,Default,,0000,0000,0000,,about possible hires.
Dialogue: 0,0:04:44.65,0:04:46.16,Default,,0000,0000,0000,,Why is it credible?
Dialogue: 0,0:04:46.16,0:04:49.10,Default,,0000,0000,0000,,Well, getting a degree \Nis harder for someone
Dialogue: 0,0:04:49.10,0:04:52.39,Default,,0000,0000,0000,,who isn't as smart, \Ndetermined, or conscientious.
Dialogue: 0,0:04:52.93,0:04:55.32,Default,,0000,0000,0000,,Here are some other signals \Nto think about.
Dialogue: 0,0:04:55.74,0:04:57.56,Default,,0000,0000,0000,,Are diamond engagement rings
Dialogue: 0,0:04:57.56,0:05:00.72,Default,,0000,0000,0000,,just about giving your loved one\Nsomething beautiful?
Dialogue: 0,0:05:00.72,0:05:03.72,Default,,0000,0000,0000,,Or is it also important \Nthat the ring costs a lot?
Dialogue: 0,0:05:03.72,0:05:07.54,Default,,0000,0000,0000,,What asymmetric information \Nmight this signal help reveal?
Dialogue: 0,0:05:08.07,0:05:09.25,Default,,0000,0000,0000,,Here's another one.
Dialogue: 0,0:05:09.25,0:05:12.07,Default,,0000,0000,0000,,Why do some criminals\Ntattoo their faces?
Dialogue: 0,0:05:12.07,0:05:14.70,Default,,0000,0000,0000,,What might be the asymmetric\Ninformation problems
Dialogue: 0,0:05:14.70,0:05:16.94,Default,,0000,0000,0000,,that they're trying to solve?
Dialogue: 0,0:05:16.94,0:05:19.73,Default,,0000,0000,0000,,And signaling is not only \Na human phenomenon.
Dialogue: 0,0:05:19.73,0:05:23.39,Default,,0000,0000,0000,,Why does a peacock\Ndrag around a large colorful tail
Dialogue: 0,0:05:23.39,0:05:26.07,Default,,0000,0000,0000,,which might appear \Nto hinder its survival?
Dialogue: 0,0:05:26.60,0:05:29.37,Default,,0000,0000,0000,,What kind of signal \Nmight be going on there?
Dialogue: 0,0:05:29.37,0:05:30.88,Default,,0000,0000,0000,,And to whom?
Dialogue: 0,0:05:30.88,0:05:32.93,Default,,0000,0000,0000,,Check your intuitions\Nto these puzzles
Dialogue: 0,0:05:32.93,0:05:35.72,Default,,0000,0000,0000,,in our practice questions\Nafter this video.
Dialogue: 0,0:05:36.44,0:05:37.70,Default,,0000,0000,0000,,So, now that we've covered
Dialogue: 0,0:05:37.70,0:05:40.69,Default,,0000,0000,0000,,how signals can help overcome\Nasymmetric information,
Dialogue: 0,0:05:40.69,0:05:44.13,Default,,0000,0000,0000,,you might wonder,\N"Are signals always a good thing?"
Dialogue: 0,0:05:44.54,0:05:47.46,Default,,0000,0000,0000,,It might seem wasteful\Nto spend four years at college,
Dialogue: 0,0:05:47.46,0:05:51.66,Default,,0000,0000,0000,,or to spend two months’ salary \Non a ring just to signal something.
Dialogue: 0,0:05:51.66,0:05:53.94,Default,,0000,0000,0000,,Students might prefer to learn more
Dialogue: 0,0:05:53.94,0:05:57.16,Default,,0000,0000,0000,,rather than spending so much time\Njumping through hoops,
Dialogue: 0,0:05:57.16,0:05:59.79,Default,,0000,0000,0000,,and it might be better\Nto buy something more practical
Dialogue: 0,0:05:59.79,0:06:02.67,Default,,0000,0000,0000,,for a potential spouse\Nthan just a ring.
Dialogue: 0,0:06:03.07,0:06:05.62,Default,,0000,0000,0000,,While signals do create \Nsome inefficiency,
Dialogue: 0,0:06:05.62,0:06:09.51,Default,,0000,0000,0000,,they also generate benefits\Nby creating more information.
Dialogue: 0,0:06:09.51,0:06:13.65,Default,,0000,0000,0000,,They help individuals in markets\Nrealize gains from trade
Dialogue: 0,0:06:13.65,0:06:17.46,Default,,0000,0000,0000,,by overcoming problems \Nof asymmetric information.
Dialogue: 0,0:06:18.06,0:06:19.79,Default,,0000,0000,0000,,So if you've enjoyed this video --
Dialogue: 0,0:06:19.79,0:06:23.44,Default,,0000,0000,0000,,well, give us a signal\Nand please let us know.
Dialogue: 0,0:06:23.44,0:06:26.70,Default,,0000,0000,0000,,Drop us a note or leave \Na suggestion for us.
Dialogue: 0,0:06:26.70,0:06:28.42,Default,,0000,0000,0000,,Your feedback will help determine
Dialogue: 0,0:06:28.42,0:06:31.75,Default,,0000,0000,0000,,how we produce\Nfuture videos and materials.
Dialogue: 0,0:06:31.75,0:06:33.01,Default,,0000,0000,0000,,Thanks.
Dialogue: 0,0:06:33.50,0:06:35.14,Default,,0000,0000,0000,,- [Narrator] If you want\Nto test yourself,
Dialogue: 0,0:06:35.14,0:06:36.81,Default,,0000,0000,0000,,click "Practice Questions."
Dialogue: 0,0:06:37.33,0:06:40.99,Default,,0000,0000,0000,,Or, if you're ready to move on,\Njust click "Next Video."
Dialogue: 0,0:06:40.99,0:06:43.50,Default,,0000,0000,0000,,♪ [music] ♪