Dynamic noisy signaling

Sander Heinsalu

doi:10.1257/mic.20160336

Dynamic noisy signaling

Sander Heinsalu^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

Abstract

This article studies costly signaling. The signaling effort is chosen in multiple periods and observed with noise. The signaler benefits from the belief of the market, not directly from the effort or the signal. Optimal signaling behavior in time-varying environments trades off effort-smoothing and influencing belief exactly when it yields a return. If the return to signaling first increases over time and then decreases, then the optimal effort rises slowly, reaches its maximum before the return does, and declines quickly. Advertising data displays this pattern.

Original language	English
Pages (from-to)	225-249
Number of pages	25
Journal	American Economic Journal: Microeconomics
Volume	10
Issue number	2
DOIs	https://doi.org/10.1257/mic.20160336
Publication status	Published - 1 May 2018

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abstract = "This article studies costly signaling. The signaling effort is chosen in multiple periods and observed with noise. The signaler benefits from the belief of the market, not directly from the effort or the signal. Optimal signaling behavior in time-varying environments trades off effort-smoothing and influencing belief exactly when it yields a return. If the return to signaling first increases over time and then decreases, then the optimal effort rises slowly, reaches its maximum before the return does, and declines quickly. Advertising data displays this pattern.",

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AB - This article studies costly signaling. The signaling effort is chosen in multiple periods and observed with noise. The signaler benefits from the belief of the market, not directly from the effort or the signal. Optimal signaling behavior in time-varying environments trades off effort-smoothing and influencing belief exactly when it yields a return. If the return to signaling first increases over time and then decreases, then the optimal effort rises slowly, reaches its maximum before the return does, and declines quickly. Advertising data displays this pattern.

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Dynamic noisy signaling

Abstract

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