Signals of Trustworthiness in Social Exchange: A Theoretical Framework and Empirical Evidence

Signaling theory is concerned with situations of strategic interdependence in which one actor (the sender) aims at persuading another actor (the receiver) of the truth of a state of affairs that the receiver does not observe. The unobserved state can be a quality of the sender the receiver would like to know more about and act upon. Signaling theory has been applied to explain individuals’ investments in higher education, employers’ choice of employees, style of dress, cultural consumption, aggressive behavior, but also cooperation in social exchange. In this paper we review the signaling theory framework with regard to its application to explain cooperation in social exchange. After restating the core elements of the theory, we discuss extensions to the basic framework which have proved useful in conceptualizing and explaining cooperation in social exchange. In particular, we show how distinguishing between (1) signaling costs and benefits, (2) signal production and signal display, (3) signals and signs, (4) signals and reputation, and (5) signals and counter-signals can make signaling theory more broadly applicable. In our discussion of the extended signaling theory framework, we illustrate the conceptual elements with evidence from empirical work. The paper concludes with novel hypotheses and an outlook on future research.