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Equilibrium Selection in Signaling Games

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  • Banks, Jeffrey S
  • Sobel, Joel

Abstract

The authors introduce a new solution concept, divine equilibrium, which refines the set of sequential equilibria in signaling games by requiring that off-the-equilibrium-path beliefs satisfy an additional restriction. This restriction rules out implausible sequential equilibria in examples. Divine equilibria exist because a sequential equilibrium that fails to be divine cannot be in a stable component. The authors demonstrate through examples that the stable component of signaling games is typically smaller than the set of divine equilibria and present a characterization of the set of stable outcomes in generic signaling games. Copyright 1987 by The Econometric Society.

Suggested Citation

  • Banks, Jeffrey S & Sobel, Joel, 1987. "Equilibrium Selection in Signaling Games," Econometrica, Econometric Society, vol. 55(3), pages 647-661, May.
  • Handle: RePEc:ecm:emetrp:v:55:y:1987:i:3:p:647-61
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