Persuasive Signalling

69 Pages Posted: 18 Aug 2015 Last revised: 2 Sep 2015

See all articles by Arianna Degan

Arianna Degan

University of Quebec at Montreal (UQAM) - Department of Economics

Ming Li

Concordia University; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Date Written: August 10, 2015

Abstract

We present a model of persuasive signalling, where a privately-informed sender selects from a class of signals with different precision to persuade a receiver to take one of two actions. The sender’s information could be either favourable or unfavourable. The receiver observes both the sender’s choice of signal and a random realization of the signal. We characterize the set of D1 equilibria. We show that all of them must involve some pooling and any informative signal must be associated with an optimistic posterior. When the receiver is ex ante skeptical or indifferent, there is a unique D1 equilibrium, which is semi-separating and where the levels of precision are independent of the prior. Finally, we investigate the sender’s optimal persuasion policy – choice of signal before (commitment) or after (discretion) he learns his type. We show that the sender is indifferent between the commitment and discretion when the prior is optimistic, prefers discretion to commitment when the prior is sufficiently pessimistic, and could either prefer discretion or commitment when the prior is neutral.

Keywords: signalling, persuasion, divine equilibrium, optimal information provision

JEL Classification: D72, D82

Suggested Citation

Degan, Arianna and Li, Ming, Persuasive Signalling (August 10, 2015). Available at SSRN: https://ssrn.com/abstract=1595511 or http://dx.doi.org/10.2139/ssrn.1595511

Arianna Degan

University of Quebec at Montreal (UQAM) - Department of Economics ( email )

P.O. Box 8888, Downtown Station
Montreal, Quebec H3C 3P8
Canada
514-987-3000 x2079 (Phone)

Ming Li (Contact Author)

Concordia University ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada

HOME PAGE: http://alcor.concordia.ca/~mingli

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

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Montreal H3C 3J7, Quebec
Canada

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