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Noisy signaling: Theory and experiment

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  • de Haan, Thomas
  • Offerman, Theo
  • Sloof, Randolph

Abstract

We introduce noise in the signaling technology of an otherwise standard wasteful signaling model (Spence, 1973). We theoretically derive the properties of the equilibria under different levels of noise and we experimentally test how behavior changes with noise. We obtain three main insights. First, if the amount of noise increases, high types aiming for separation (must) increase their signaling expenditures. This theoretical prediction is confirmed in our experiment. Second, for intermediate and high levels of noise, a separating and pooling equilibrium co-exist. In the experiment, subjects tend to shift from coordinating on a separating outcome to a pooling one as noise increases. Third, a surprising theoretical insight is that a separating equilibrium ceases to exist for low levels of noise (and an unfavorable prior). Yet in the experiment subjects then do coordinate on separation. A simple attraction learning model incorporating belief learning, imitation and reinforcement, explains this stable non-equilibrium behavior.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 73 (2011)
Issue (Month): 2 ()
Pages: 402-428

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Handle: RePEc:eee:gamebe:v:73:y:2011:i:2:p:402-428

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Signaling games; Noise; Separation; Experiments;

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Cited by:
  1. Jeitschko, Thomas D. & Normann, Hans-Theo, 2011. "Signaling in deterministic and stochastic settings," DICE Discussion Papers 35, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Leonard J. Mirman & Egas Salgueiro & Marc Santugini, 2011. "Noisy Signaling in Monopoly," Cahiers de recherche 11-03, HEC Montréal, Institut d'économie appliquée, revised May 2013.
  3. Ennio Bilancini & Leonardo Boncinelli, 2014. "Small Noise in Signaling Selects Pooling on Minimum Signal," Center for Economic Research (RECent) 101, University of Modena and Reggio E., Dept. of Economics.
  4. Francesc Dilmé, 2014. "Dynamic Quality Signaling with Hidden Actions," PIER Working Paper Archive 14-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Francesc Dilmé, 2012. "Dynamic Quality Signaling with Hidden Actions, Second Version," PIER Working Paper Archive 13-063, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 03 Oct 2013.
  6. Volker Benndorf & Dorothea Kübler & Hans-Theo Normann, 2013. "Privacy Concerns, Voluntary Disclosure of Information, and Unraveling: An Experiment," SFB 649 Discussion Papers SFB649DP2013-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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