Problem 4. Consider the following job market signaling game: 10, 10 4,4- 10, 0- 4,4 M' C' M' (p) N (1-P) WH High (1/3) Low (2/3) N' WL E F E' (q) i (1-9) M с M 6, 10 0,4 3,0 -3,4 (a) Show that when both types of worker choose education (E) is not a pooling PBE (no matter what firm chooses when observing N). (b) Show that there is a pooling PBE where both types of worker choose no education (N) and the firm's posterior belief after observing E is the same as prior. (c) Show that there is a separating PBE of this game.

Problem 4. Consider the following job market signaling game: 10, 10 4,4- 10, 0- 4,4 M' C' M' (p) N (1-P) WH High (1/3) Low (2/3) N' WL E F E' (q) i (1-9) M с M 6, 10 0,4 3,0 -3,4 (a) Show that when both types of worker choose education (E) is not a pooling PBE (no matter what firm chooses when observing N). (b) Show that there is a pooling PBE where both types of worker choose no education (N) and the firm's posterior belief after observing E is the same as prior. (c) Show that there is a separating PBE of this game.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Problem 4. Consider the following job market signaling game:
10, 10
10,0
4,4
M'
M'
F
(p)
WH
N
(1-P)
High (1/3)
N'
Low (2/3)
E
(1-
WL E'
F
M
M
6, 10
3,0
-3.4
(a) Show that when both types of worker choose education (E) is not a pooling PBE (no
matter what firm chooses when observing N).
(b) Show that there is a pooling PBE where both types of worker choose no education (N)
and the firm's posterior belief after observing E is the same as prior.
(c) Show that there is a separating PBE of this game.

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