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Signaling without a common prior: Results on experimental equilibrium selection

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  • Drouvelis, Michalis
  • Müller, Wieland
  • Possajennikov, Alex

Abstract

The common prior assumption is pervasive in game-theoretic models with incomplete information. This paper investigates experimentally the importance of inducing a correct common prior in a two-person signaling game. Equilibrium selection arguments predict that different equilibria may be selected depending on whether the common prior is induced or not. Indeed, for a specific probability distribution of the senderʼs type, the long-run behavior without an induced common prior is shown to be different from the long-run behavior when a common prior is induced, while for other distributions long-run behavior is similar under both regimes. We also present a learning model that allows players to learn about the other playersʼ strategies and the prior distribution of the senderʼs type. We show that this learning model accurately accounts for all main features of the data.

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Bibliographic Info

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

Volume (Year): 74 (2012)
Issue (Month): 1 ()
Pages: 102-119

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Handle: RePEc:eee:gamebe:v:74:y:2012:i:1:p:102-119

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

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Keywords: Common prior; Signaling; Experiment; Learning; Equilibrium selection;

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Cited by:
  1. Alex Possajennikov, 2012. "Belief Formation in a Signalling Game without Common Prior: An Experiment," Discussion Papers 2012-06, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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