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Signaling: 14.12 Game Theory Muhamet Yildiz

1) The document discusses signaling games and different types of equilibria that can arise in such games including pooling, separating, and mixed equilibria. 2) It provides examples of a pooling, separating, and mixed equilibrium using a beer-quiche signaling game. 3) It then discusses job market signaling, where workers choose education levels to signal their ability to employers, and the possibility of pooling versus separating equilibria.

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0% found this document useful (0 votes)
101 views11 pages

Signaling: 14.12 Game Theory Muhamet Yildiz

1) The document discusses signaling games and different types of equilibria that can arise in such games including pooling, separating, and mixed equilibria. 2) It provides examples of a pooling, separating, and mixed equilibrium using a beer-quiche signaling game. 3) It then discusses job market signaling, where workers choose education levels to signal their ability to employers, and the possibility of pooling versus separating equilibria.

Uploaded by

gd3000
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Signaling

14.12 Game Theory


Muhamet Yildiz

Road map
1. Signaling games review
1. Pooling equilibrium
2. Separating equilibrium
3. Mixed
2. Job-market signaling (short, time permitting)

3. Review
4. Evaluations

Signaling Games

Beer Quiche

2
0

3
1

don

t
don

quiche

beer

{.1}

el
du

1
0

du
el

tw
ts
beer {.9}

quiche

e
du

1
1

don

3
0

0
0

du
el

0
1

don

2
1

Signaling Game -- Definition


Two Players: (S)ender, (R)eceiver
1. Nature selects a type ti from T = {t1,,tI}
with probability p(ti);
2. Sender observes ti, and then chooses a
message mj from M = {m1,,mI};
3. Receiver observes mj (but not ti), and then
chooses an action ak from A = {a1,,aK};
4. Payoffs are US(ti,mj,ak) and UR(ti,mj,ak).

Beer Quiche

2
0

3
1

don

t
don

quiche

beer

{.1}

el
du

1
0

du
el

tw
ts
beer {.9}

quiche

e
du

1
1

don

3
0

0
0

du
el

0
1

don

2
1

Types of Equilibria
A pooling equilibrium is an equilibrium in
which all types of sender send the same
message.
A separating equilibrium is an equilibrium in
which all types of sender send different
messages.
A partially separating/pooling equilibrium is
an equilibrium in which some types of sender
send the same message, while some others
sends some other messages.

A Pooling equilibrium

2
0

3
1

don

t
don

quiche

beer

{.1}

el
du

1
0

du
el

tw
ts
beer {.9}

quiche

e
du

1
1

don

3
0

0
0

du
el

0
1

don

2
1

A Separating equilibrium

0.5
0

3
1

don

e
du

quiche

beer

t 0

{.1}

tw

el
du

1
0

du
el

quiche

1 don
t

ts
1 beer {.9}

1
1

don

t
don

3
0
0
0

du
el

0
1

2
1

A Mixed equilibrium
du
el

don

2
0

3
1

el
du

1
0

t
don

quiche

beer

don

{.9}

tw
ts
beer {.1}

e
du

quiche

1
1
3
0

0
0

du
el

0
1

don

2
1

A Mixed equilibrium
du
.5 el

2 p =.5 ont .5 q=1/9


d
0

el
du

1
0

.5
3
1

.5

t
don

e
du

quiche

beer

{.9} 8/9

tw

quiche

1 do
n t

ts
.5 beer {.1}

1
1

don

3
0
0
0

du
el

0
1

2
1

Job Market Signaling

Model
A worker
with ability t = H or t = L (his private information)
Pr(t = H) = q,
obtains an observable education level e,
incurring cost c(t,e) where c(H,e) < c(L,e), and
finds a job with wage w(e), where he
produces y(t,e).

Firms compete for the worker: in equilibrium,


w(e) = (H|e)y(H,e) + (1 (H|e))y(L,e).

Equilibrium
(eH, eL, w(e), (H|e)) where
et = argmaxe w(e) c(t,e) for each t;
w(e) = (H|e)y(H,e) + (1 (H|e))y(L,e);
(H|e) =

qPr(eH = e)

qPr(eH = e) + (1-q)Pr(eL = e)
whenever well-defined.

If t were common knowledge


w

)
w (e

e)
,
t
(
y

e*(t)

No need to imitate
, e)
H
(
y

,e)
L
(
y

e*(L)

e*(H)

No need to imitate

w(.)

e)
,
y (H

,e)
L
(
y

e*(L)

e*(H)

want to imitate
w

, e)
H
(
y

,e)
L
(
y

e*(L) e*(H)

A pooling equilibrium
w

, e)
H
y(
qy(

H ,e

(
q) y
1
+(

)
L ,e

,e)
L
(
y

e*(L) e*(H)

A separating equilibrium
w

, e)
H
(
y

,e)
L
(
y

eL=e*(L)

e*(H)

eH

10

An intuitive separating equilibrium


w

e)
,
y (H

,e)
L
(
y

eL=e*(L)

eH

11

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