American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Justified Communication Equilibrium
American Economic Review
vol. 111,
no. 9, September 2021
(pp. 3004–34)
Abstract
Justified communication equilibrium (JCE) is an equilibrium refinement for signaling games with cheap-talk communication. A strategy profile must be a JCE to be a stable outcome of nonequilibrium learning when receivers are initially trusting and senders play many more times than receivers. In the learning model, the counterfactual "speeches" that have been informally used to motivate past refinements are messages that are actually sent. Stable profiles need not be perfect Bayesian equilibria, so JCE sometimes preserves equilibria that existing refinements eliminate. Despite this, it resembles the earlier refinements D1 and NWBR, and it coincides with them in co-monotonic signaling games.Citation
Clark, Daniel, and Drew Fudenberg. 2021. "Justified Communication Equilibrium." American Economic Review 111 (9): 3004–34. DOI: 10.1257/aer.20201692Additional Materials
JEL Classification
- C70 Game Theory and Bargaining Theory: General
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- J23 Labor Demand
- M51 Personnel Economics: Firm Employment Decisions; Promotions