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Revision of conjectures about the opponent's utilities in signaling games

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Economic Theory (2007) 30: 373–384 DOI 10.1007/s00199-005-0061-7 EXPOSITA NOT E Tim Schulteis · Andres Perea · Hans Peters Dries Vermeulen Revision of conjectures about the opponent’s utilities in signaling games Received: 1 April 2004 / Accepted: 7 August 2005 / Published online: 25 November 2005 © Springer-Verlag 2005 Abstract In this paper we apply the concept of preference conjecture equilibrium introduced in Perea (2005) to signaling games and show its relation to sequential equilibrium. We introduce the concept of minimum revision equilibrium and show how this can be interpreted as a refinement of sequential equilibrium. Keywords Signaling games · Preference conjecture equilibrium · Utility revision JEL Classification Numbers C72 1 Introduction In this paper we deal with the question how a receiver in a signaling game should react if he observes an unexpected message. In the concept of sequential equilib- rium (Kreps and Wilson 1982) this is dealt with by requiring that the receiver has beliefs on information sets that are not reached in equilibrium and that he decides optimally given these beliefs. However, in signaling games sequential equilibrium does not put any further restrictions on these beliefs. In order to make the concept more powerful, several refinements were introduced in literature, such as perfect sequential equilibrium (Grossman and Perry 1986), the intuitive criterion (Cho and Kreps 1987) and divine equilibrium (Banks and Sobel 1987). In all these refine- ments the idea is that player 2, upon observing an unexpected message, makes a distinction between “less plausible” and “more plausible” types, and attaches positive probability only to the more plausible types. Throughout this reasoning process the utility functions are assumed to be fixed, which implies that player 2 T. Schulteis · A. Perea · H. Peters (B) · H. Peters · D. Vermeulen Department of Quantitative Economics, University of Maastricht, P.O. Box 616, 6200 MD Maastricht, The Netherland

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