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Author
T. de Haan
T. Offerman
R. Sloof
Year
2011
Title
Noisy signaling: theory and experiment
Journal
Games and Economic Behavior
Volume | Issue number
73 | 2
Pages (from-to)
402-428
Document type
Article
Faculty
Faculty of Economics and Business (FEB)
Institute
Amsterdam School of Economics Research Institute (ASE-RI)
Abstract
We introduce noise in the signaling technology of an otherwise standard wasteful signaling model (Spence, 1973). We theoretically derive the properties of the equilibria under different levels of noise and we experimentally test how behavior changes with noise. We obtain three main insights. First, if the amount of noise increases, high types aiming for separation (must) increase their signaling expenditures. This theoretical prediction is confirmed in our experiment. Second, for intermediate and high levels of noise, a separating and pooling equilibrium co-exist. In the experiment, subjects tend to shift from coordinating on a separating outcome to a pooling one as noise increases. Third, a surprising theoretical insight is that a separating equilibrium ceases to exist for low levels of noise (and an unfavorable prior). Yet in the experiment subjects then do coordinate on separation. A simple attraction learning model incorporating belief learning, imitation and reinforcement, explains this stable non-equilibrium behavior.
URL
go to publisher's site
Language
English
Permalink
http://hdl.handle.net/11245/1.356596

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