SFB 303 Discussion Paper No. B-271

Author: Nöldeke, Georg and Larry Samuelson
Title: Learning to signal in markets
Abstract: We formulate a dynamic learning-and-adjustment model of a market in which sellers choose signals that potentially reveal their types. If the dynamic process selects a unique limiting outcome, then that outcome must be an undefeated equilibrium; though to be undefeated does not suffice to be the sole limiting outcome. If a Riley outcome exists that provides "high" type sellers with a higher utility than any other equilibrium outcome, then that outcome is the unique limiting outcome of our model. In the absence of a Riley outcome, or if high type workers obtain higher utility in a pooling equilibrium than in the Riley outcome, a unique limit outcome will only emerge under very stringent conditions. If these conditions fail, the market will cycle between various equilibria and, possibly, nonequilibrium outcomes.
JEL-Classification-Number: C70, C72, D82, D83
Creation-Date: February 1994
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