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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.

Suggested Citation

  • Drouvelis, Michalis & Müller, Wieland & Possajennikov, Alex, 2012. "Signaling without a common prior: Results on experimental equilibrium selection," Games and Economic Behavior, Elsevier, vol. 74(1), pages 102-119.
  • Handle: RePEc:eee:gamebe:v:74:y:2012:i:1:p:102-119
    DOI: 10.1016/j.geb.2011.05.004
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    Cited by:

    1. Alex Possajennikov, 2018. "Belief formation in a signaling game without common prior: an experiment," Theory and Decision, Springer, vol. 84(3), pages 483-505, May.
    2. Bos, Olivier & Gomez-Martinez, Francisco & Onderstal, Sander & Truyts, Tom, 2021. "Signalling in auctions: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 187(C), pages 448-469.

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    More about this item

    Keywords

    Common prior; Signaling; Experiment; Learning; Equilibrium selection;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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