Belief-Based Refinements in Signalling Games

Abstract There are many economic problems which, when modelled as games of incomplete information, give rise to many sequential equilibria, severely limiting the usefulness of the model. There has recently been a large literature devoted to refining the set of equilibria in order to reduce this multiplicity by restricting the set of admissible disequilibrium beliefs. This paper argues that the logical foundations of some refinements and the equilibria they focus on are problematic and, further, proposes an alternative refinement that avoids the difficulties. We also provide an existence theorem covering a broad class of signalling games often studied in economics. Journal of Economic Literature Classification Numbers: C72, C70, D82.