What is signaling game?

Signaling game is a type of game theory model in which one or both players have private or hidden information that they signal to the other player through observable actions or signals. The objective of the game is to find a strategy that maximizes the expected payoff for the player who has the hidden information.

In a signaling game, the player who has the private information is called the sender, and the player who does not have the information is called the receiver. The sender can choose to send a signal or not, and the receiver can choose to act on the signal or not. The sender's strategy is to choose a signal that reveals their private information truthfully, or possibly to bluff and send a signal that is inconsistent with their private information.

The receiver's strategy is to interpret the signal and make an action that maximizes their expected payoff, given the information they have received. In some cases, the receiver may choose to ignore the signal altogether if they believe it is unreliable or if the cost of following the signal is too high.

Signaling games can be applied to various real-world scenarios such as auctions, job interviews, and advertising. These games provide insight into how people communicate and how information is conveyed and interpreted.