Signaling Game
- Inventor of Game: David Lewis
The premise of some game theories can be pretty weird and difficult, but not with the Signaling Game. One player is taking the action of signaling to ensure information is known. The other player is the one seeing the signal. Of course, the signaling player could send either true or false information, with false information being more costly. You might be able to connect this to the real world through how businesses react to something. A manufacturer provides a warranty for their product, which is signaling to prospective customers that their product is unlikely to have any problems.
Warranties would be tough to add if there was a high potential the product might be problematic. As the money used to fix several products would be costly to the company. In the game, a signal sender has both a “desirable” and “undesirable” payoff. The receiver knows the probability of each but only has one possible type they can use. Senders move first, while receivers move second. The sender needs to assure the receiver that they are sending a desirable type, and will try to signal to show this. However, the undesirable type could send the same signal. Therefore, the end game here is seeing how the receiver interprets the signals.