Equilibrium Selection in Signaling Games

Jeffrey Banks and Joel Sobel

Econometrica, 1987, vol. 55, issue 3, 647-61

Abstract: The authors introduce a new solution concept, divine equilibrium, which refines the set of sequential equilibria in signaling games by requiring that off-the-equilibrium-path beliefs satisfy an additional restriction. This restriction rules out implausible sequential equilibria in examples. Divine equilibria exist because a sequential equilibrium that fails to be divine cannot be in a stable component. The authors demonstrate through examples that the stable component of signaling games is typically smaller than the set of divine equilibria and present a characterization of the set of stable outcomes in generic signaling games. Copyright 1987 by The Econometric Society.

Date: 1987
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