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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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  15. Hans K. Hvide, 2003. "Education and the Allocation of Talent," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 945-976, October.
  16. Steffen Huck & Hans-Theo Normann & Joerg Oechssler, 1997. "Learning in Cournot Oligopoly - An Experiment," Game Theory and Information 9707009, EconWPA, revised 22 Jul 1997.
  17. Riley, John G., 1975. "Competitive signalling," Journal of Economic Theory, Elsevier, vol. 10(2), pages 174-186, April.
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