Signalling games and incentive dominance

Resumen

We present a new refinement for signalling games: the Introspective Equilibrium. It is based on both a procedure for beliefs formation -called Incentive Dominance- and a global consistence requirement, closely related to that of the Undefeated equilibrium of mailath, Okuno-Fujiwara and Postlewaite. The incentive Dominance criterion captures the principie of forward induction through explicitly modelling the players thought process when forming preliminary beliefs. The main idea is that they should exploit the information contained in the best reply structure about the incentives of the different types of a a rational Bayesian sender. Our criterion subsumes very intuitive ones as equilibrium dorninance and divinity. The Introspective Equilibrium asks for an unambigous explanation of any deviation from a given equilibrium. This means that the explanation should be unique, part of a sequential equilibrium and achievable from the preliminary beliefs defined by the Incentive Dominance Criterion.