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Signaling and Countersignaling: A Theory of Understatement

  • Nick Feltovich

    (University of Houston)

  • Rick Harbaugh

    (Claremont McKenna College)

  • Ted To

    (Bureau of Labor Statistics)

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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  1. 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.
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  9. Mark N. Hertzendorf, 1993. "I'm Not a High-Quality Firm -- But I Play One on TV," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 236-247, Summer.
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