Editing Signaling game (section)

{{Short description|Game class in game theory}}
[[File:Signaling Game.svg|thumb|right|200px|An [[extensive form game|extensive form]] representation of a signaling game]]
In [[game theory]], a '''signaling game''' is a type of a [[dynamic game|dynamic]] [[Bayesian game]].<ref name=ft91>Subsection 8.2.2 in Fudenberg Trole 1991, pp. 326–331</ref>

The essence of a signaling game is that one player takes action, the signal, to convey information to another player. Sending the signal is more costly if the information is false. A manufacturer, for example, might provide a warranty for its product to signal to consumers that it is unlikely to break down. A traditional example is a worker who acquires a college degree not because it increases their skill but because it conveys their ability to employers. 

A simple signaling game would have two players: the sender and the receiver. The sender has one of two types, which might be called "desirable" and "undesirable," with different payoff functions. The receiver knows the probability of each type but not which one this particular sender has. The receiver has just one possible type. 
 
The sender moves first, choosing an action called the "signal" or "message" (though the term "message" is more often used in non-signaling "[[cheap talk]]" games where sending messages is costless). The receiver moves second, after observing the signal.

The two players receive payoffs dependent on the sender's type, the message chosen by the sender, and the action chosen by the receiver.<ref>{{cite book |last=Gibbons |first=Robert |year=1992 |title=A Primer in Game Theory |location=New York |publisher=Harvester Wheatsheaf |isbn=978-0-7450-1159-2 }}</ref><ref>{{cite book |last1=Osborne |first1=M. J. |name-list-style=amp |author-link2=Ariel Rubinstein |last2=Rubinstein |first2=A. |year=1994 |title=A Course in Game Theory |location=Cambridge |publisher=MIT Press |isbn=978-0-262-65040-3 }}</ref>

The tension in the game is that the sender wants to persuade the receiver that they have the desirable type, so they try to choose a signal. Whether this succeeds depends on whether the undesirable type would send the same signal and how the receiver interprets the signal.