Persuasive Selection in Signaling Games

TL;DR

This paper proposes a new criterion called persuasiveness for selecting equilibria in signaling games, effectively refining predictions and uniquely identifying outcomes in both monotone and non-monotone settings, including cheap-talk games.

Contribution

It introduces persuasiveness as a novel equilibrium selection criterion that addresses limitations of existing methods and applies to a broad class of signaling and cheap-talk games.

Findings

Persuasiveness uniquely selects equilibria in monotone signaling games.

It refines equilibrium predictions in non-monotone signaling games.

It effectively selects equilibria in cheap-talk games where previous criteria fail.

Abstract

This paper introduces a novel criterion, persuasiveness, to select equilibria in signaling games. In response to the Stiglitz critique, persuasiveness focuses on the comparison across equilibria. An equilibrium is more persuasive than an alternative if the set of types of the sender who prefer the alternative would sequentially deviate to the former once other types have done so -- that is, if an unraveling occurs. Persuasiveness has strong selective power: it uniquely selects an equilibrium outcome in monotone signaling games. Moreover, in non-monotone signaling games, persuasiveness refines predictions beyond existing selection criteria. Notably, it can also select equilibria in cheap-talk games, where standard equilibrium refinements for signaling games have no selective power.