Lect15_Slides

Lect15_Slides - How to Negotiate a Pay Raise with Game...

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How to Negotiate a Pay Raise with Game Theory http://www.youtube.com/watch?v=ikE1pn034WA
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? ? ? Signaling Games ? ? ? • In incomplete information games, one player knows ore information than the other player more information than the other player. • So far, we have focused on the case where the “type” of the more informed player was known to that player but unknown to the less informed player. • Signaling games are incomplete information games where the more informed player has to decide whether to signal in some way their true type, and the less informed player has to decide how to py respond to both the uncertainty about his opponent’s type and the signal his opponent has sent, cogni ing that signals ma be til l h recognizing that signals may be strategically chosen .
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What are Signals? Signals are actions that more informed players use to convey information to less informed players about the unobservable pe of the more informed player type of the more informed player. – Example: A player who wants the trust of less informed player may signal past instances of trust, may provide verbal assurances of trustworthiness, e names of character references/former employees on a resume discuss the names of character references/former employees on a resume, discuss church attendance, charity work, etc. Signals may or may not be credible : Why? Because individuals will use signals strategically when it suits them. Less qualified applicants may “pad” their resumes, lie about their past work history/qualifications, embezzle from their church/charity. yq , y – Talk is cheap: “Yeah, right”; “whatever”; “I could care less” are common. – The more credible signals involve costly actions, e.g. a college diploma, artistic portfolio a published book a successful business an artistic portfolio, a published book, a successful business.
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xamples of Strategic Signaling Examples of Strategic Signaling • Insurance contracts: Accident prone types will want greater coverage, lower deductibles, while those unlikely to be in accidents will require minimal coverage, higher deductibles. Insurance companies respond to these signals by charging higher prices for greater coverage/lower deductible. • Used cars: The dealer has to decide whether to offer a arrant on a sed car or offer the car “as is ” warranty on a used car or offer the car “as is.” • Pittsburgh left-turn game: The left-turner can attempt to signal whether he is a Pittsburgher or an Out-of-Towner. • Letter grade or pass/fail grades: Letter grade signals more commitment, risk-taking; pass grade signals lowest possible il t t d C passing letter grade, C-.
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xample 1: Prisoner’s Dilemma Again Example 1: Prisoner s Dilemma Again.
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This note was uploaded on 12/26/2011 for the course ECON 171 taught by Professor Charness,g during the Fall '08 term at UCSB.

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Lect15_Slides - How to Negotiate a Pay Raise with Game...

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