Pecuniary Emulation and Invidious Distinction: Signaling Under Behavioral Diversity
22 Pages Posted: 30 Oct 2023
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Pecuniary Emulation and Invidious Distinction: Signaling Under Behavioral Diversity
Pecuniary Emulation and Invidious Distinction: Signaling under Behavioral Diversity
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
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