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Rationalization In Signaling Games: Theory And Applications

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Author Info
PIERPAOLO BATTIGALLI () (Bocconi University and IGIER, Via Salasco, 5, 20136, Milano, Italy)

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Abstract

Focusing on signaling games, I illustrate the relevance of the rationalizability approach for the analysis multistage games with incomplete information. I define a class of iterative solution procedures, featuring a notion of "forward induction": the Receiver tries to explain the Sender's message in a way which is consistent with the Sender's strategic sophistication and certain given restrictions on beliefs. The approach is applied to some numerical examples and economic models. In a standard model with verifiable messages a full disclosure result is obtained. In a model of job market signaling the best separating equilibrium emerges as the unique rationalizable outcome only when the high and low types are sufficiently different. Otherwise, rationalizability only puts bounds on the education choices of different types.

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Publisher Info
Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 08 (2006)
Issue (Month): 01 ()
Pages: 67-93
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Handle: RePEc:wsi:igtrxx:v:08:y:2006:i:01:p:67-93

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Related research
Keywords: Incomplete information; signaling; rationalization; Subject Classification: C72; Subject Classification: D82;

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Find related papers by JEL classification:
B4 - Schools of Economic Thought and Methodology - - Economic Methodology
C0 - Mathematical and Quantitative Methods - - General
C6 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D5 - Microeconomics - - General Equilibrium and Disequilibrium
D7 - Microeconomics - - Analysis of Collective Decision-Making
M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics

References listed on IDEAS
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    Other versions:
  3. Grossman, S J & Hart, O D, 1980. " Disclosure Laws and Takeover Bids," Journal of Finance, American Finance Association, vol. 35(2), pages 323-34, May. [Downloadable!] (restricted)
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  7. Battigalli, Pierpaolo & Siniscalchi, Marciano, 1999. "Hierarchies of Conditional Beliefs and Interactive Epistemology in Dynamic Games," Journal of Economic Theory, Elsevier, vol. 88(1), pages 188-230, September. [Downloadable!] (restricted)
    Other versions:
  8. Dirk Bergemann & Stephen Morris, 2005. "Robust Implementation: The Role of Large Type Spaces," Levine's Bibliography 784828000000000116, UCLA Department of Economics. [Downloadable!]
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  9. Battigalli, Pierpaolo, 2003. "Rationalizability in infinite, dynamic games with incomplete information," Research in Economics, Elsevier, vol. 57(1), pages 1-38, March. [Downloadable!] (restricted)
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  14. N. M. Kiefer, 1998. "Reply," Econometric Reviews, Taylor and Francis Journals, vol. 7(2), pages 161-163. [Downloadable!] (restricted)
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  16. In-Koo Cho, 2004. "Monotonicity and Rationalizability in Large Uniform Price and Double Auctions," Theory workshop papers 658612000000000076, UCLA Department of Economics. [Downloadable!]
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  19. Tai-Wei Hu, 2004. "General Rationalizability and Its Robustness for Strategic Form Games with Incomplete Information," Econometric Society 2004 Far Eastern Meetings 771, Econometric Society.
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  22. Pierpaolo Battigalli & Joel Watson, 1997. "On "Reputation" Refinements with Heterogeneous Beliefs," Econometrica, Econometric Society, vol. 65(2), pages 369-374, March.
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  23. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May. [Downloadable!] (restricted)
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  25. Giacomo Bonanno & Klaus Nehring, 1999. "How to make sense of the common prior assumption under incomplete information," International Journal of Game Theory, Springer, vol. 28(3), pages 409-434. [Downloadable!] (restricted)
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  31. Watson, Joel, 1998. "Alternating-Offer Bargaining with Two-Sided Incomplete Information," Review of Economic Studies, Blackwell Publishing, vol. 65(3), pages 573-94, July. [Downloadable!] (restricted)
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  32. L. G. Godfrey & A. R. Tremayne, 1998. "Reply," Econometric Reviews, Taylor and Francis Journals, vol. 7(1), pages 63-64. [Downloadable!] (restricted)
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