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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Wednesday, October 28, 2020
12:00pm to 1:00pm
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Online Event
Signaling with Private Monitoring
Gonzalo Cisternas, Class of 1954 Career Development Associate Professor, Applied Economics Group, MIT Sloan School of Management.,

Abstract: We study dynamic signaling when the informed party does not observe the signals generated by her actions. A long-run player signals her type continuously over time to a myopic second player who privately monitors her behavior; in turn, the myopic player transmits his private inferences back through an imperfect public signal of his actions. Preferences are linear-quadratic and the information structure is Gaussian. We construct linear Markov equilibria using belief states up to the long-run player's second-order belief. Because of the private monitoring, this state is an explicit function of the long-run player's past play. A novel separation effect then emerges through this second-order belief channel, altering the traditional signaling that arises when beliefs are public. Applications to models of leadership, reputation, and trading are examined.

Written with Aaron Kolb. Professor Cisternas will be joined by guests Juuso Toikka and Mehmet Ekmekci.

How to view the seminar:
Sign up for a free account, and tune in on Wednesdays at noon pacific time on You will be able to ask questions on the twitch chat.

For more information, please contact Letty Diaz by phone at 626-395-1255 or by email at [email protected].