Lecture 23 - Asymmetric information: silence, signaling and suffering education

author: Benjamin Polak, Department of Economics, Yale University
recorded by: Yale University
published: Nov. 15, 2010,   recorded: September 2007,   views: 3166
released under terms of: Creative Commons Attribution No Derivatives (CC-BY-ND)
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Description

We look at two settings with asymmetric information; one side of a game knows something that the other side does not. We should always interpret attempts to communicate or signal such information taking into account the incentives of the person doing the signaling. In the first setting, information is verifiable. Here, the failure explicitly to reveal information can be informative, and hence verifiable information tends to come out even when you don't want it to. We consider examples of such information unraveling. Then we move to unverifiable information. Here, it is hard to convey such information even if you want to. Nevertheless, differentially costly signals can sometimes provide incentives for agents with different information to distinguish themselves. In particular, we consider how the education system can allow future workers to signal their abilities. We discuss some implications of this rather pessimistic view of education.

Reading assignment:

Strategies and Games: Theory And Practice. (Dutta): Chapters 19-21

Strategy: An Introduction to Game Theory. (Watson): Chapters 24, 29

Resources:

Blackboard Notes Lecture 23 [PDF]

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