Screening

Plain definition

Screening is when the less-informed party designs a test or menu of options that gets the other side to reveal their hidden information.

In economics

It is the mirror image of signaling: instead of the informed party volunteering information, the uninformed party structures choices so types self-sort. Insurance deductibles and job probationary periods are screens.

Example

An insurer offering a choice between a high-deductible cheap plan and a low-deductible expensive plan screens customers: cautious drivers pick the cheap plan, revealing their type.

Common confusion

Screening is not signaling; in screening the uninformed party (insurer, employer) moves first with a menu, while in signaling the informed party moves first with a costly action.