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Signaling and Countersignaling: A Theory of Understatement

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Author Info
Nick Feltovich (University of Houston)
Rick Harbaugh (Claremont McKenna College)
Ted To (Bureau of Labor Statistics)

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Abstract

In signaling environments ranging from consumption to education, high quality senders often shun the standard signals that should separate them from lower quality senders. We find that allowing for additional, noisy information on sender quality permits equilibria where medium types signal to separate themselves from low types, but high types then choose to not signal or countersignal. High types not only save costs by relying on the additional information to stochastically separate them from low types, but countersignaling itself is a signal of confidence which separates high types from medium types. Experimental results confirm that subjects can learn to countersignal.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 1999-21.

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Handle: RePEc:clm:clmeco:1999-21

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Related research
Keywords: signaling; countersignaling; understatement;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information

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  10. Kagel, John H & Levin, Dan, 1991. "The Winner's Curse and Public Information in Common Value Auctions: Reply," American Economic Review, American Economic Association, vol. 81(1), pages 362-69, March. [Downloadable!] (restricted)
    Other versions:
  11. Riley, John G., 1975. "Competitive signalling," Journal of Economic Theory, Elsevier, vol. 10(2), pages 174-186, April. [Downloadable!] (restricted)
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  12. Harbaugh, William T., 1998. "What do donations buy?: A model of philanthropy based on prestige and warm glow," Journal of Public Economics, Elsevier, vol. 67(2), pages 269-284, February. [Downloadable!] (restricted)
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  20. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages C80-95, March. [Downloadable!] (restricted)
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  21. Spence, A Michael, 1973. "Job Market Signaling," The Quarterly Journal of Economics, MIT Press, vol. 87(3), pages 355-74, August. [Downloadable!] (restricted)
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    Other versions:
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