AN EFFECTIVE ALGORITHM FOR COMPUTING EQUILIBRIUM OUTCOME OF A CLASS OF SIGNALING GAMES

Gang Yu (), Zhaohan Sheng () and Tiaojun Xiao ()
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Gang Yu: Department of Management Science and Information Systems, McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712-1175, USA
Zhaohan Sheng: Graduate School of Management Science and Engineering, Nanjing University, Nanjing, Jiangsu 210093, China
Tiaojun Xiao: Graduate School of Management Science and Engineering, Nanjing University, Nanjing, Jiangsu 210093, China

International Journal of Information Technology & Decision Making (IJITDM), 2002, vol. 01, issue 02, 209-228

Abstract: In this paper, we study the class of signaling games in which a unique perfect Bayesian Nash equilibrium outcome satisfying the Intuitive Criterion exists. We first describe the models of signaling games and lay out the definition of equilibrium and some basic assumptions. We then prove three basic theorems leading to the proof of the main theorem that gives sufficient conditions under which a signaling game has a unique outcome. The proof of the main theorem also leads to a method for computing the equilibrium outcome. We formally present the algorithm and illustrate its application through a numerical example. Finally, we apply our algorithm to enterprise management decision-making.

Keywords: Signaling game; equilibrium outcome; intuitive criterion; pooling equilibrium; separating equilibrium (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1142/S0219622002000130

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