Costless Signaling with Costly Signals

28 Pages Posted: 15 Sep 2017

See all articles by B. Douglas Bernheim

B. Douglas Bernheim

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Aaron Bodoh-Creed

University of California, Berkeley - Haas School of Business

Date Written: September 13, 2017

Abstract

We study signaling environments with two features that are common in practice: first, complete-information bliss points are heterogeneous across different types of senders; second, receivers observe many choices by each sender, rather than a single decision. We prove that, ironically, a sufficiently large increase in the weight attached to signaling costs allows senders to signal their true types at arbitrarily low overall cost. As an application, it follows that, when senders take a sufficient number of observable actions, their private information is revealed almost costlessly. Instead of becoming ubiquitous, costly signaling becomes essentially irrelevant.

Suggested Citation

Bernheim, B. Douglas and Bodoh-Creed, Aaron, Costless Signaling with Costly Signals (September 13, 2017). Available at SSRN: https://ssrn.com/abstract=3036660 or http://dx.doi.org/10.2139/ssrn.3036660

B. Douglas Bernheim

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
650-725-8732 (Phone)
650-725-5702 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Aaron Bodoh-Creed (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

Berkeley, CA 94720
United States

HOME PAGE: http://faculty.haas.berkeley.edu/acreed/

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