8. Signalling

Assigned Reading

• Packet: McMillan, John, ``Information and Bargaining Breakdown,'' pp. 65-75 of Games, Strategies, and Managers, Oxford: Oxford University Press, 1992.
• "The 2001 Sveriges Riksbank (Bank of Sweden) Prize in Economic Sciences in Honor of Alfred Nobel," (Akerlof, Spence, Stiglitz), Nobel Foundation press release, October 10, 2001, http: //www.nobel.se/economics/laureates/2001/press.html.
• "Stanford Business School's Spence Wins Nobel Prize in Economics, " Stanford Business School press release, October 9, 2001, http: //www.gsb.stanford.edu/news/spence_2001nobel.html.

Antithesis: To incur a cost without a direct benefit is foolish.

Topics That Might be Discussed in Class

• Education as signalling
• Bargaining breakdown: strikes and oil well unitization
• The brake linings example and ``wasteful`` advertising
• Venture capital: using risk acceptance as a signal

Important Terms

For Next Time

• Deneckere, Raymond and R. Preston McAfee, ``Damaged Goods,'' Journal of Economics and Management Science, Summer 1996, 5: 149-174.
• Quiz 2.

Additional Material

• Rasmusen, Eric ``Lobbying When the Decisionmaker Can Acquire Independent Information,'' Public Choice , (1993) 77: 899-913. Available in Acrobat (*.pdf). An application of signalling to lobbying and protesting.
• Some powerpoint slides used in class.

Return to the Thinking Strategically Home Page at http://pacioli.bus.indiana.edu/erasmuse/g570/g570.htm.