Perturbed communication games with honest senders and naive receivers

This paper studies communication games in which the sender is possibly honest (tells the truth) and the receiver is possibly naive (follows messages as if truthful). The characterization of message-monotone equilibria in the perturbed games explain several important aspects of strategic communication including sender exaggeration, receiver skepticism and message clustering. Surprisingly, the strategic receiver may respond to more aggressive claims with more moderate actions. In the limit as the probabilities of the non-strategic players approach zero, (i) the limit equilibrium corresponds to a most-informative equilibrium of the limit (Crawford-Sobel) game; (ii) only the top messages are sent.     

Reputational cheap talk with misunderstanding

We consider a cheap talk game with a sender who has a reputational concern for an ability to predict a state of the world correctly, and where receivers may misunderstand the message sent. When communication between the sender and each receiver is private, we identify an equilibrium in which the sender only discloses the least noisy information. Hence, what determines the amount of information revealed is not the absolute noise level of communication, but the extent to which the noise level may vary. The resulting threshold in transmission noise for which information is revealed may differ across receivers, but is unrelated to the quality of the information channel. When information transmission has to be public, a race to the bottom results: the cut-off level for noise of transmitted information now drops to the lowest cut-off level for any receiver in the audience.     

Morale,performance and disclosure

We study the optimal disclosure policy in a sender–receiver communication game where the receiver's morale, defined as his expected state of the world, affects his performance. The sender observes the state and chooses whether to disclose it to the receiver, who then decides whether to participate in a task. The receiver wins if his performance in the task meets a target. No disclosure is optimal if the receiver wins with average morale in each state. Otherwise, in the threshold disclosure equilibrium that Pareto-dominates full disclosure, the receiver quits as the sender discloses the worst states and wins as the sender withholds the rest. The receiver wins in more states in the Pareto-optimal equilibrium as the sender chooses a non-monotonic disclosure policy. Our theory reveals a trade-off between transparency and efficiency when morale affects performance. It has applications in a broad range of areas including military, family, education and business.     

Decentralized advice

We compare the amount of information credibly transmitted by cheap talk when information is centralized to one sender and when it is decentralized, with each of several senders holding a distinct but interdependent piece. Under centralization, full information transmission is typically impossible. Under decentralization, however, the number of receivers is decisive: decentralized communication with one receiver is completely uninformative, but decentralized communication with multiple receivers can be fully informative. We analyze the extent of such fully-informative communication, and apply our results to the issue of transparency in advisory committees.     

A Model of Reputation in Cheap Talk*

We study a dynamic game of advice where the sender's preferences are unknown to the receiver. The novel feature of the model is that there is more than one type of biased sender. We show that the more equal the proportions of different biases in the sender population, the greater the credibility of the information transmitted. Somewhat surprisingly, however, we also find that the receiver does not benefit from this equality. We discuss our results in the context of political lobbying and show that institutions that increase transparency lower lobbyists' incentives for truthtelling, but unambiguously promote the policymaker's welfare.     

Cheap talk with multiple audiences: An experimental analysis

We examine strategic information transmission in a controlled laboratory experiment of a cheap talk game with one sender and multiple receivers. We study the change in equilibrium behavior from the addition of another audience as well as from varying the degree of conflict between the senderʼs and receiversʼ preferences. We find that, as in cheap talk games with just one receiver, information transmission is higher in games with a separating equilibrium, than in games with only a babbling equilibrium. More interestingly, we find clear evidence that the addition of another audience alters the communication between the sender and the receiver in a way consistent with the theoretical predictions. There is evidence of the presence of agents that are systematically truthful as senders and trusting as receivers: deviations from the theoretical predictions, however, tend to disappear with experience, and learning is faster precisely in the games where deviations are more pronounced.     

BAYESIAN PERSUASION WITH PRIVATE EXPERIMENTATION

This article studies a situation in which a sender tries to persuade a receiver by providing hard evidence that is generated by sequential private experimentation where the sender can design the properties of each experiment contingent on the experimentation history. The sender can selectively reveal as many outcomes as desired. We determine the set of equilibria that are not Pareto‐dominated. In each of these equilibria under private experimentation, the persuasion probability is lower and the receiver obtains access to higher quality information than under public experimentation. The decision quality improves in the sender's stakes.     

Cheap talk with two senders and complementary information

This paper studies a cheap talk model in which two senders having partial and non-overlapping private information simultaneously communicate with an uninformed receiver. The sensitivity of the receiverʼs ideal action to one senderʼs private information depends on the other senderʼs private information. We show that the sendersʼ information transmissions exhibit strategic complementarity: more information transmitted by one sender leads to more information being transmitted by the other sender.     

Informal communication

The typical sender-receiver game studied in the literature assumes that receiver is uninformed. I analyze a model where receiver has private information and sender cares to be perceived as honest. If sender's honesty concerns are strong enough, the model predicts information revelation as a unique equilibrium. This uniqueness result contrasts with the multiplicity of equilibria in games with uninformed receiver. To achieve information revelation as a unique equilibrium, receiver may have to ask for information, which is extraneous for her decision. If sender's honesty concerns are not too strong, asking for extraneous information may create an incentive for lying.     

Signaling without a common prior: Results on experimental equilibrium selection

The common prior assumption is pervasive in game-theoretic models with incomplete information. This paper investigates experimentally the importance of inducing a correct common prior in a two-person signaling game. Equilibrium selection arguments predict that different equilibria may be selected depending on whether the common prior is induced or not. Indeed, for a specific probability distribution of the sender?s type, the long-run behavior without an induced common prior is shown to be different from the long-run behavior when a common prior is induced, while for other distributions long-run behavior is similar under both regimes. We also present a learning model that allows players to learn about the other players? strategies and the prior distribution of the sender?s type. We show that this learning model accurately accounts for all main features of the data.     

Credulity, lies, and costly talk

This paper studies a model of strategic communication by an informed and upwardly biased sender to one or more receivers. Applications include situations in which (i) it is costly for the sender to misrepresent information, due to legal, technological, or moral constraints, or (ii) receivers may be credulous and blindly believe the sender's recommendation. In contrast to the predictions obtained in the benchmark cheap talk model, our model admits a fully separating equilibrium, provided that the state space is unbounded above. The language used in equilibrium is inflated and naive receivers are deceived.     

Endogenous Persuasion with Costly Verification

In this paper, I study a situation in which a sender tries to persuade a receiver with evidence that is generated via public or private experimentation. Under public experimentation, any experimental outcome is revealed, and under private experimentation the sender can hide adverse outcomes. The sender can design the properties of the experiments. The receiver chooses whether to verify at a cost the design of the experiment with which the revealed outcome was generated. I find that communication breaks down under public experimentation if there is no restriction on the experiment's design, and that persuasion is possible under private experimentation.     

Truthtelling in Matching Markets

We analyze a search and matching model with non‐transferable utility and asymmetric information. Randomly paired agents go through an evaluation phase, at the end of which they discover each other's types and choose to match or not. Before deciding to enter this phase, agents can communicate through cheap talk. We provide conditions for this communication to be informative, and we examine how it affects agents' welfare. We show that communication is Pareto‐improving only when the matching is assortative in the absence of communication and left unchanged by information transmission.     

Information transmission and incentives not to price discriminate

This paper analyzes how the pricing policy of an incumbent may signal information not only on the demand level but also on the demand composition. A signalling game with two periods and two players (an established firm and a potential entrant) is considered. The potential entrant has incomplete information on market demand. There exist many sequential equilibria in which the uniform price policy acts as an entry deterrence device by hiding actual market profitability. We can interpret the uniform pricing policy as a rejection of the use of superior information on market demand composition in order to reduce the entrant's expected profits.     

The folk theorem for repeated games with observation costs

The folk theorem literature has been relaxing the assumption on how much players know about each other's past action. Here we consider a general model where players can “buy” precise information. Every period, each player decides whether to pay a cost to accurately observe the actions chosen by other players in the previous period. When a player does not pay the cost, he obtains only imperfect private signals. Observational decisions are unobservable to others. Known strategies such as trigger strategies do not work since they fail to motivate players to pay for information. This paper shows that the folk theorem holds for any level of observation costs. Unlike existing folk theorems with private monitoring, ours imposes virtually no restriction on the nature of costless imperfect signals. The theorem does not use explicit or costless communication, thereby having implications on antitrust laws that rely on evidence of explicit communication. The main message is that accurate observation alone, however costly, enables efficient cooperation in general repeated games.     

Unmediated communication in games with complete and incomplete information

We study the effects of adding unmediated communication to static, finite games of complete and incomplete information. We characterize S^U(G), the set of outcomes of a game G, that are induced by sequential equilibria of cheap talk extensions. A cheap talk extension of G is an extensive-form game in which players communicate before playing G. A reliable mediator is not available and players exchange private or public messages that do not affect directly their payoffs. We first show that if G is a game of complete information with five or more players and rational parameters, then S^U(G) coincides with the set of correlated equilibria of G. Next, we demonstrate that if G is a game of incomplete information with at least five players, rational parameters and full support (i.e., all profiles of types have positive probability), then S^U(G) is equal to the set of communication equilibria of G.     

Self-Serving Cheap Talk: A Test Of Aumann's Conjecture

The effectiveness of pre-play communication in achieving efficient outcomes has long been a subject of controversy. Aumann conjectures that, in a variant of the Stag Hunt game, “an agreement to play [the efficient outcome] conveys no information about what the players will do” and thus should not affect behavior. Farrell and Rabin suspect that cheap talk will achieve efficiency. Results show impressive coordination when the sender first chooses a signal and then an action. Without communication, efforts to achieve efficiency are largely unsuccessful. As Farrell suggests, reversing the order of the action and signal appears to change players' behavior. Journal of Economic Literature Classification Numbers: A13, C72, C91, D82, D84.     

MONEY TALKS? AN EXPERIMENTAL INVESTIGATION OF CHEAP TALK AND BURNED MONEY

We experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used. Theoretically, many equilibria exist side by side, in which senders use either costless messages, money, or both. We find that senders prefer to communicate through costless messages. Only when the interest disalignment between sender and receiver increases does cheap talk tend to break down and high sender types start burning money to enhance the credibility of their costless messages. A behavioral model assuming that sellers bear a cost of lying fits the data best.     

Simultaneous versus sequential knowledge transfer in an organization

This paper studies an organizational knowledge sharing process which requires costly “teaching” and “learning” efforts on the part of the sender and receiver, respectively. The process is a team problem in which the principal rewards successful sharing by optimally rewarding performance. In this setting we compare two modes of knowledge transfer with regard to efficiency. The first is sequential in which the sender precommits to teaching and the receiver acts as a follower. The second is simultaneous where each agent simultaneously exerts effort. A key result is that the sequential mode dominates when teaching and learning are complements, but the simultaneous mode dominates if teaching and learning are substitutes.     

Information design,externalities, and government interventions

We consider a model of Bayesian persuasion with spillovers. A sender provides information to persuade a receiver to take an action with external effects. We consider how government interventions, including corrective subsidy and tax, affect social welfare. In addition to internalizing externalities, government interventions affect social welfare through an informational channel. Subsidies to the sender's preferred action incentivize the sender to reveal less information, but taxes on the sender's preferred action incentivize the sender to reveal more information. Because of such an informational effect, the optimal subsidy and tax may be different from the size of the externalities. In some cases, social welfare is maximized with no government intervention.