Simple forward induction in monotonic multi-sender signaling games

Abstract

We introduce a new, powerful, and easy-to-use solution concept called simple forward induction which is implied by strategic stability in generic finite multi-sender signaling games. We apply this concept to infinite monotonic signaling games and show that a unique simple forward induction outcome exists and is non-distorted by asymmetric information. We also show that, in this class of games, the non-distorted outcome is the limit of stable outcomes of finite games. Hence, in this sense, we characterize stable outcomes in this class of games. The definition of our solution concept can be easily extended to arbitrary extensive-form games.