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Signaling without a common prior: Results on experimental equilibrium selection

Michalis Drouvelis (), Wieland Müller and Alex Possajennikov ()

Games and Economic Behavior, 2012, vol. 74, issue 1, 102-119

Abstract: The common prior assumption is pervasive in game-theoretic models with incomplete information. This paper investigates experimentally the importance of inducing a correct common prior in a two-person signaling game. Equilibrium selection arguments predict that different equilibria may be selected depending on whether the common prior is induced or not. Indeed, for a specific probability distribution of the senderʼs type, the long-run behavior without an induced common prior is shown to be different from the long-run behavior when a common prior is induced, while for other distributions long-run behavior is similar under both regimes. We also present a learning model that allows players to learn about the other playersʼ strategies and the prior distribution of the senderʼs type. We show that this learning model accurately accounts for all main features of the data.

Keywords: Common prior; Signaling; Experiment; Learning; Equilibrium selection (search for similar items in EconPapers)
JEL-codes: C72 C92 D83 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:74:y:2012:i:1:p:102-119

DOI: 10.1016/j.geb.2011.05.004

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