How can honest communication be ensured despite conflicting interests between a signaller and a signal receiver?
Economists and biologists independently proposed that the costs associated with producing signals can provide a solution to this problem. Loosely paraphrased, the solution typically takes the following form.
Suppose that signals are costly, and that for one reason or another, lies cost more than honest signals.
If telling the truth is cheap enough and telling a lie is costly enough, it may be worthwhile to communicate honestly but not to lie.
Without further exposition, this hint of a solution appears to raise more questions than it answers: What sort of mechanisms make signals costly? Why would lies cost more than honest signals? Do all signals have to be costly, or can honest signals be free? How much must lies cost in order for signalling to remain honest? Will individuals that use costly signals necessarily be better off than agents that simply decide not to communiate?
In the sections that follow, we explore these and other questions. We will begin by looking at costly signals in biology. Later, we will consider examples from economics.