Screening
The uninformed side designs choices that make the informed side reveal its type.
What it means
A remedy for asymmetric information in which the party lacking private information offers a menu of options crafted so that different hidden types self-select into different choices, revealing what they know. Unlike signaling, where the informed party moves first, here the uninformed party takes the initiative — for example, an insurer offering high-deductible and low-deductible plans so low-risk and high-risk customers sort themselves. The contracts are built to satisfy incentive-compatibility so no type wants to mimic another. It matters as the mirror image of signaling and a core tool against adverse selection in insurance, lending, labor, and pricing.
Examples
An airline offering a cheap restricted fare and a flexible expensive one screens leisure travelers from business travelers.
A lender offers a low-rate loan needing a big deposit beside a high-rate loan needing none; borrowers who know they can save reliably sort themselves into the cheaper deal.
A software firm sells a free tier with usage caps next to a paid plan; heavy commercial users reveal themselves by upgrading, without ever being asked what they earn.
First described in Stiglitz (1975); Rothschild & Stiglitz (1976).