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# Micro C, Lecture 16

Signaling, Renements
Gibbons 4.4

Fall 2013

## In our analysis of signaling theory we have seen: Only

expensive signals are good signals!

believable

## Requirement 3: On equilibrium path, beliefs are given by

equilibrium strategies and Bayes' rule

## (Requirement 4: O the equilibrium path, beliefs are given by

strategies and Bayes' rule where possible)

1
L

2,2

M
2

A
3,1

B
0,0

A
1,0

B
0,1

Consider

R , B , p 21

Another Example

D
1
L

1,3

2,2

M
2

3,1

In equilibrium:

B
0,0

A
1,0

B
0,1

Denition

## i has the move. The

strategy s is strictly dominated beginning at this information set if
there exists another s that is always better given that the

0

## information set has been reached.

Requirement 5

Requirement 5
If possible, each player's beliefs o the equilibrium path should
place zero probability on nodes that are reached only if another
player plays a strategy that is strictly dominated beginning at some
information set.

Intuition: Players know that other players are rational and will
never play a strictly dominated strategy

## Their beliefs are reasonable = they don't believe others will

play strictly dominated strategies

2,2

M
2

1,1

0,0

L and M

1,1

B
0,1

Both

3, 2

u
[p]

2, 0

Nature
1
2

u
L

1, 1

t2

[q]
d

1
2

R
1, 0

t1

1, 0

0, 1

R
u

2, 1

R
d

0, 0

## Find a PBE in which the sender plays

(L, L).

Signaling Requirement 5

Dominated Messages

The message
message

for

than

## so that no matter what the receiver does,

m.

m0
j

is better

Signaling Requirement 5
If the information set following

t , then

(t |m ) = 0
i

if

1, 1

u
[p]

3, 0

[q]
d

Nature
0.9

u
L

2, 0

0.1
R

0, 1

t1

t2

0, 1

2, 0

R
u

1, 1

R
d

3, 0

Pooling PBE:

## But: Why should

t1 choose R

instead of

L?

Requirement 6

Equilibrium Domination
Given a PBE in a signaling game, the message
dominated for type

is equilibrium

is

## m is o the equilibrium path and

m is equilibrium dominated for t , then
If the information set following
j

(t |m ) = 0
i

## Every strictly dominated message is equilibrium dominated,

but not the other way around!