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Equilibrium Selection in Signaling Games

Banks, Jeffrey S. and Sobel, Joel (1987) Equilibrium Selection in Signaling Games. Econometrica, 55 (3). pp. 647-661. ISSN 1468-0262. doi:10.2307/1913604.

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This paper studies the sequential equilibria of signaling games. It introduces a new solution concept, divine equilibrium, that refines the set of sequential equilibria by requiring that off-the-equilibrium-path beliefs satisfy an additional restriction. This restriction rules out implausible sequential equilibria in many examples. We show that divine equilibria exist by demonstrating that a sequential equilibrium that fails to be divine cannot be in a stable component. However, the stable component of signaling games is typically smaller than the set of divine equilibria. We demonstrate this fact through examples. We also present a characterization of the stable equilibria in generic signaling games.

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Additional Information:© 1987 The Econometric Society. The original version of this paper was written while Banks was a graduate student and Sobel was a visitor at Caltech. We thank participants of Caltech, UCSD, and Rand Corporation Theory Workshops, Drew Fudenberg, David Kreps, and two referees for valuable comments. Sobel thanks Joe Farrell and Chris Harris for many conversations on related topics and the National Science Foundation for partial support under Grant SES 84-08655. Kreps (1985) stimulated our interest in this area. Cho and Kreps (1987) contains some of the results of this paper.
Funding AgencyGrant Number
NSFSES 84-08655
Subject Keywords:Strategic stability, equilibrium selection, signaling, game theory
Issue or Number:3
Record Number:CaltechAUTHORS:20160524-120531056
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Official Citation:Banks, Jeffrey S., and Sobel Joel. "Equilibrium Selection in Signaling Games." Econometrica 55, no. 3 (1987): 647-61.
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:67310
Deposited By: Ruth Sustaita
Deposited On:24 May 2016 20:28
Last Modified:11 Nov 2021 00:30

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