I think this is an excellent idea. My dog loves to meet other dogs but it would be very helpful to know in advance which dogs do not want interaction. My previous dog would have worn a bright yellow ribbon although she loved people and was fine off leash, but aggressive towards other dogs on leash. As far as the comment about "avoiding social situations" for a yellow ribbon dog, it's not easy when walking the dog in the neighborhood without seeing other people and dogs, so the yellow ribbon is an excellent solution.
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