Noisy signaling: theory and experiment

We investigate a noisy signaling game, in which nature adds random
noise to the message chosen. Theoretically, with an unfavorable prior the
separating equilibrium vanishes for low noise. It reappears for intermediate
and high noise, where messages increase with noise. A pooling equilibrium
always exists. In our experiment, noise works as an empirical equilibrium
selection device. When noise increases, the separating equilibrium loses
ground to the pooling equilibrium. Subjects separate for low noise where no
separating equilibrium exists. Conditional on aiming for separation, high-
quality senders choose messages that increase monotonically with noise. A
simple behavioral explanation organizes the data well.
Keywords: signaling games, noise, separation, experiments