Signalling Theory and Some Applications

Abstract

The course, which comprises 5 lectures followed by question and answer sessions, will introduce the students to the principles of signalling theory, its history, and some of its common misconceptions; it will also present an overview of the applications of the theory in the social sciences, and focus in detail on three applications: trust decisions, interpersonal violence and self-harm.

Objective

The target is to familiarise the students with the fundamental concepts of signalling theory and its important applications, and to show them in detail how the theory can be creatively used to provide simple explanations of complex topics. The course will enable them to develop their own projects and test the theory in a variety of domains.

Content

Signalling theory (ST) tackles a fundamental problem of communication: how can an agent, the receiver, establish whether another agent, the signaller, is telling or otherwise conveying the truth about a state of affairs or event which the signaller might have an interest to misrepresent? And, conversely, how can the signaller persuade the receiver that he is telling the truth, whether he is telling it or not? This two-pronged question potentially arises every time the interests between signallers and receivers diverge or collide and there is asymmetric information, namely the signaller is in a better position to know the truth than the receiver is. ST, which is only a little more than 30 years old, has now become a branch of game theory. In economics it was introduced by Michael Spence in 1973. In biology it took off not so much when Amotz Zahavi first introduced the idea in 1975, but since, in 1990, Alan Grafen proved formally that ‘honest’ signals can be an evolutionarily stable strategy. Typical situations that signalling theory covers have two key features: (i) there is some action the receiver can do which benefits a signaller, whether or not he has the quality k, for instance marry him, but (ii) this action benefits the receiver if and only if the signaller truly has k, and otherwise hurts her – for instance, marry an unfaithful man. This applies to conflict situations too: if we know that our opponent is going to win a fight we may choose to yield without fighting at a lesser cost for both. Thus k signallers and receivers share an interest in the truth, but the interests of non-k signallers and receivers are opposed: non-k signallers would like to deceive receivers into thinking they have k, in order to receive the benefit, while receivers have an interest in not being deceived. (The interests of k's and non-k's are also usually opposed because the activity of the latter damages the credibility of the signals of the former.) The main result in signalling theory is that there is a solution in which at least some truth is transmitted, provided that among the possible signals is one, s, which is cheap enough to emit, relatively to the benefit, for signallers who have k, but costly enough to emit, relatively to the benefit, for those who do not. If s is too costly to fake for all or most non-k signallers then observing s is good evidence that the signaller has k. It is hard to think of another theory that in recent times has been developing so fast across all behavioural sciences. In economics applications have concerned Spence’s model of education as a signal of productivity, and practices, such as product guarantees, financial markets, advertising, charity donations, scientific publications funded by private firms. In political science applications include, ways of credibly signalling foreign policy interests; how different political arrangements can favour more discriminating signals of high quality politicians; under what conditions bargaining mediators are credible; whether the size of terrorist attacks can be a signal of terrorist organisation resources; and whether the theory can shed light on ethnic mimicry. Anthropologists have used the theory to make sense of ‘wasteful’ or ‘inefficient’ practices in pre-modern cultures, such as redistributive feasts, big yam displays, and hunting difficult preys; they have also used the theory to investigate the cooperative effects of differentially costly rituals and requirements in religious groups. In sociology applications have concerned the attraction that a group of deviant youth display for the punishment beatings they receive from the IRA, status interpreted as a signal of firm’s quality, the signals taxi drivers rely on when deciding whether to pick up hailers or callers in dangerous cities, criminals’ strategies to identify bona fide criminals, the patterns of prison fights and the use of self-harm.

Resources