What is signaling games?

Signaling games are a type of game theory model that describes a situation where one player possesses private information about a state of the world, and the other player does not. The player with the private information may choose to communicate part of or all of this information to the other player through a signal. The other player then makes decisions based on the signal received.

For example, in a job market scenario, a job applicant possesses private information about their skill level, and the employer does not. The applicant may choose to signal their skill level by including specific keywords in their resume or highlighting relevant experience. The employer then makes decisions about hiring based on this information.

In signaling games, the quality of the signal can impact the outcome of the game. A high-quality signal that accurately conveys the private information may lead to better outcomes for both players, while a low-quality signal may lead to suboptimal outcomes or even a breakdown in communication.

Signaling games have important implications in fields such as economics, political science, and psychology, as they can help explain various real-world phenomena, from market signaling to political messaging.