Too cool for school? Signalling and countersignalling

Nick Feltovich, Rick Harbaugh, and Ted To

In signalling environments ranging from consumption to education, high quality senders often shun the standard signals that should separate themselves from lower quality senders. We find that allowing for additional, noisy information on sender type can radically alter the predictions of standard signalling models, potentially explaining why those with the greatest ability to signal might choose not to. We examine equilibria where medium types separate themselves from low types by signaling, but high types then differentiate themselves from medium types by not signalling, or countersignalling. High types not only save the cost of signalling by relying on the additional information to stochastically separate them from low types, but in doing so they separate themselves from the signalling medium types. Hence they may countersignal even when signalling is a productive activity. To evaluate this theory we report on a two-cell experiment in which the unique Nash equilibrium of one cell involves countersignalling by high types. Experimental results confirm that subjects can learn to countersignal.

Feltovich, Nick, Rick Harbaugh and Ted To (2002), "Too cool for school? Signalling and countersignalling", RAND Journal of Economics 33 (4), pp. 630-649.