Signaling game
A manufacturer, for example, might provide a warranty for its product to signal to consumers that it is unlikely to break down.
A traditional example is a worker who acquires a college degree not because it increases their skill but because it conveys their ability to employers.
The sender has one of two types, which might be called "desirable" and "undesirable," with different payoff functions.
[2][3] The tension in the game is that the sender wants to persuade the receiver that they have the desirable type, so they try to choose a signal.
A perfect Bayesian equilibrium combines beliefs and strategies for each player.
In this game, the firms compete for the wage down to where it equals the expected ability, so if there is no signal possible, the result would be
Perfect Bayesian equilibrium requires an out-of-equilibrium belief to be specified, too, for all the other possible levels of
If, as in the separating equilibrium, employers expect that high-ability people will acquire a certain level of education and low-ability ones will not, we get the main insight: that if people cannot communicate their ability directly, they will acquire education even if it does not increase productivity, to demonstrate ability.
The Beer-Quiche game of Cho and Kreps[8] draws on the stereotype of quiche eaters being less masculine.
Before making the decision, B has the opportunity to see whether A chooses to have beer or quiche for breakfast.
Quine,[11][12] Lewis attempts to develop a theory of convention and meaning using signaling games.
Work on the emergence of language in simple signaling games includes models by Huttegger,[14] Grim, et al.,[15] Skyrms,[16][17] and Zollman.
[18] Harms,[19][20] and Huttegger,[21] have attempted to extend the study to include the distinction between normative and descriptive language.
Valuable advances have been made by applying signaling games to several biological questions.
Most notably, Alan Grafen's (1990) handicap model of mate attraction displays.
[22] The antlers of stags, the elaborate plumage of peacocks and bird-of-paradise, and the song of the nightingale are all such signals.
[23] More recently, a series of papers by Getty[24][25][26][27] shows that Grafen's analysis, like that of Spence, is based on the critical simplifying assumption that signalers trade-off costs for benefits in an additive fashion, the way humans invest money to increase income in the same currency.
Charles Godfray (1991) modeled the begging behavior of nestling birds as a signaling game.
[29] Thompson's gazelles are known sometimes to perform a 'stott,' a jump into the air of several feet with the white tail showing, when they detect a predator.
Alcock and others have suggested that this action signals the gazelle's speed to the predator.
This action successfully distinguishes types because it would be impossible or too costly for a sick creature to perform.
Hence, the predator is deterred from chasing a stotting gazelle because it is obviously very agile and would prove hard to catch.
The concept of information asymmetry in molecular biology has long been apparent.
Such models have been proposed to explain, for example, the emergence of the genetic code from an RNA and amino acid world.
Essentially, this raises the question: under which circumstances can we anticipate that rational individuals or animals influenced by natural selection will disclose details regarding their types?
If both parties have coinciding interests, that is, they prefer the same outcomes in all situations, then honesty is an equilibrium.
However, if the parties' interests do not perfectly overlap, then the maintenance of informative signaling systems raises an important problem.
Consider a circumstance described by John Maynard Smith regarding transfer between related individuals.
Economists and biologists have been interested in understanding the signaling stability in these scenarios.
Investigating when costs are essential to maintaining honesty has become a major research focus in both disciplines.
