Too Cool for School? Signaling and Countersignaling
University of Houston - Department of Economics
Indiana University - Kelley School of Business - Department of Business Economics & Public Policy; Indiana University - Department of Economics
Bureau of Labor Statistics
In signaling environments ranging from consumption to education, high quality senders often shun the standard signals that should separate them from lower quality senders. We find that allowing for additional, noisy information on sender quality permits equilibria where medium types signal to separate themselves from low types, but high types then choose to not signal or "countersignal". High types not only save costs by relying on the additional information to stochastically separate them from low types, but countersignaling itself is a signal of confidence which separates high types from medium types. Experimental results confirm that subjects can learn to countersignal.
Number of Pages in PDF File: 34
Keywords: signaling, countersignaling, confidence, understatement
JEL Classification: C72, D82, D83
Date posted: June 8, 2001
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