Ulric B. and Evelyn L. Bray Social Sciences Seminar

Wednesday October 28, 2020 12:00 PM

Signaling with Private Monitoring

Speaker: Gonzalo Cisternas, Applied Economics Group, MIT Sloan School of Management.
Location: Online Event

Abstract: We study dynamic signaling when the informed party does not observe the signals generated by her actions. A long-run player signals her type continuously over time to a myopic second player who privately monitors her behavior; in turn, the myopic player transmits his private inferences back through an imperfect public signal of his actions. Preferences are linear-quadratic and the information structure is Gaussian. We construct linear Markov equilibria using belief states up to the long-run player's second-order belief. Because of the private monitoring, this state is an explicit function of the long-run player's past play. A novel separation effect then emerges through this second-order belief channel, altering the traditional signaling that arises when beliefs are public. Applications to models of leadership, reputation, and trading are examined.

Written with Aaron Kolb. Professor Cisternas will be joined by guests Juuso Toikka and Mehmet Ekmekci.

How to view the seminar:
Sign up for a free twitch.tv account, and tune in on Wednesdays at noon pacific time on twitch.tv/caltechecontheory. You will be able to ask questions on the twitch chat.

Series Ulric B. and Evelyn L. Bray Social Sciences Seminar Series

Contact: Letty Diaz at 626-395-1255 letty.diaz@caltech.edu