Selecting a Pooling Equilibrium in Signaling Games with Strong Preferences

In this paper, we identify a general class of monotonic signaling games in which there are multiple pooling equilibria, but one of them is more plausible than others. In this class of games, we develop a new refinement, the passive equilibrium, which selects only the most plausible equilibrium of the games even when the single-crossing condition is not satisfied. Additionally, we apply our refinement to an inspection game with asymmetric information, and we find that the inspector prefers not to inspect a potentially illegal activity when the cost of inspection and the probability of high ability offenders are sufficiently high