Signaling Game

A signaling game is a dynamic, Bayesian game with two players, the sender (S) and the receiver (R). The sender has a certain type, t, which is given by nature. The sender observes his own type while the receiver does not know the type of the sender. Based on his knowledge of his own type, the sender chooses to send a message from a set of possible messages M = {m₁, m₂, m₃,..., m_j}. The receiver observes the message but not the type of the sender. Then the receiver chooses an action from a set of feasible actions A = {a₁, a₂, a₃,...., a_k}. The two players receive payoffs dependent on the sender's type, the message chosen by the sender and the action chosen by the receiver. A related game is a screening game where rather than choosing an action based on a signal, the receiver gives the sender proposals based on the type of the sender, which the sender has some control over.

Signaling games were introduced by In-Koo Cho and David M. Kreps in a 1987 article.