Pecuniary Emulation and Invidious Distinction: Signaling under Behavioral Diversity
ISER DP No.1216 (2023)
23 Pages Posted: 17 Nov 2023
There are 2 versions of this paper
Pecuniary Emulation and Invidious Distinction: Signaling Under Behavioral Diversity
Date Written: October 17, 2023
Abstract
We introduce behavioral diversity to an otherwise standard signaling model, in which a fraction of agents choose their signaling actions according to an exogenous distribution. These behavioral agents provide opportunities for strategic low-type agents to successfully emulate higher types in equilibrium, which in turn reduces the cost for strategic high-type agents to separate from lower types. Behavioral diversity thus improves the equilibrium payoffs to all types of strategic agents. The model also exhibits a convergence property which is intuitively more appealing than the least-cost separating equilibrium of the standard setting.
Keywords: least-cost separating equilibrium, insensitivity to prior, behavioral diversity, equilibrium emulation
JEL Classification: D82,Z13
Suggested Citation: Suggested Citation