Signaling and Countersignaling: A Theory of Understatement

Nick Feltovich (), Rick Harbaugh () and Ted To

Claremont Colleges Working Papers from Claremont Colleges

Abstract: In signaling environments ranging from consumption to education, high quality senders often shun the standard signals that should separate them from lower quality senders. We find that allowing for additional, noisy information on sender quality permits equilibria where medium types signal to separate themselves from low types, but high types then choose to not signal or countersignal. High types not only save costs by relying on the additional information to stochastically separate them from low types, but countersignaling itself is a signal of confidence which separates high types from medium types. Experimental results confirm that subjects can learn to countersignal.

Keywords: signaling; countersignaling; understatement (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
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Persistent link: http://EconPapers.repec.org/RePEc:clm:clmeco:1999-21

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