Not so cheap talk: a model of advice with communication costs

We model a game similar to the interaction between an academic advisor and advisee. Like the classic cheap talk setup, an informed player sends information to an uninformed receiver who is to take an action which affects the payoffs of both sender and receiver. However, unlike the classic cheap talk setup, the preferences regarding the receiver's actions are identical for both sender and receiver. Additionally, the sender incurs a communication cost which is increasing in the complexity of the message sent. We characterize the resulting equilibria. Under an additional out-of-equilibrium condition (Condition L), if preferences for sender and receiver are identical then the only equilibria are the most informative, feasible ones. A similar result appears in Chen, Kartik and Sobel (2008) when their No Incentive to Separate (NITS) condition is applied to the case where communication is costless but preferences diverge. Additionally, we model the competency of the advisee by the probability that the action is selected by mistake. We show that the informativeness of the sender is decreasing in the likelihood of the mistake. When the preferences between players diverge and when there are communication costs, we are not guaranteed uniqueness and we provide an example where an increase in communication costs can improve communication.complexity, communication, cheap talk

Testing the Effect of a Short Cheap Talk Script in Choice Experiments

The application of stated preference methods rests on the assumption that respondents act rationally and that their demand for the non-market good on the hypothetical market is equal to what their real demand would be. Previous studies have shown that this is not the case and this gap is known as hypothetical bias. The present paper attempts to frame the description of the hypothetical market so as to induce more “true market behaviour” in the respondents by including a short Cheap Talk script. The script informs respondents that in similar studies using stated preference methods, people have a tendency to overestimate how much they are willing to pay compared to their actual (true) willingness to pay. Applying a two-split sample approach to a Choice Experiment study focusing on preferences for reducing visual disamenities from offshore wind farms, the Cheap Talk script is found to be a preference mover, but does not affect preferences significantly. Significant effects are found when relating the effect of the Cheap Talk script to the cost levels of the alternatives, in that female respondents are found to choose higher cost alternatives less frequently when presented with the Cheap Talk script, while male respondents are not affected.Cheap Talk, Stated Preferences, Choice Experiment, Hypothetical Bias, Gender

Can Public Discussion Enhance Program Ownership?

We use the concepts of deliberative democracy from political science and cheap talk from economics to develop a better understanding of how public discussion can contribute to building and demonstrating ownership of IMF programs and hence to program success. We argue that ownership is more complex than many discussions of it would suggest, since it must include not only the willingness to carry out a program, but also the technical capacity and especially the political ability to do so. Public discussion can serve a number of purposes, each of which can be better understood by moving to a more formal treatment. We illustrate our points by means of simple examples. We also consider some of the drawbacks of public discussion, especially as applied to IMF programs.

Not so cheap talk: costly and discrete communication

We model an interaction between an informed sender and an uninformed receiver. As in the classic cheap talk setup, the informed player sends a message to an uninformed receiver who is to take an action which affects the payoffs of both players. However, in our model the sender can communicate only through the use of discrete messages which are ordered by the cost incurred by the sender. We characterize the resulting equilibria without refining out-of-equilibrium beliefs. Subsequently, we apply an adapted version of the no incentive to seperate (NITS) condition to our model. We show that if the sender and receiver have aligned preferences regarding the action of the receiver then NITS only admits the equilibrium with the largest possible number of induced actions. When the preferences between players are not aligned, we show that NITS does not guarantee uniqueness and we provide an example where an increase in communication costs can improve communication. As we show, this improvement can occur to such an extent that the equilibrium outperforms the Goltsman et al. (2009) upper bound for receiver's payoffs in mediated communication

COORDINATING COLLECTIVE RESISTANCE THROUGH COMMUNICATION AND REPEATED INTERACTION

This paper presents a laboratory collective resistance (CR) game to study how different forms of repeated interactions, with and without communication, can help coordinate subordinates' collective resistance to a ???divide-and-conquer??? transgression against their personal interests. In the one-shot CR game, a first???mover (the ???leader???) decides whether to transgress against two responders. Successful transgression increases the payoff of the leader at the expense of the victim(s) of transgression. The two responders then simultaneously decide whether to challenge the leader. The subordinates face a coordination problem in that their challenge against the leader's transgression will only succeed if both of them incur the cost to do so. The outcome without transgression can occur in equilibrium with standard money-maximizing preferences with repeated interactions, but this outcome is not an equilibrium with standard preferences when adding non-binding subordinate ???cheap talk??? communication in the one-shot game. Nevertheless, we find that communication (in the one-shot game) is at least as effective as repetition (with no communication) in reducing the transgression rate. Moreover, communication is better than repetition in coordinating resistance, because it makes it easier for subordinates to identify others who have social preferences and are willing to incur the cost to punish a violation of social norms.Communication, Cheap Talk, Collective Resistance, Divide-and-Conquer, Laboratory Experiment, Repeated Games, Social Preferences

Strategic Experimentation with Private Payoffs

We consider two players facing identical discrete-time bandit problems with a safe and a risky arm. In any period, the risky arm yields either a success or a failure, and the first success reveals the risky arm to dominate the safe one. When payoffs are public information, the ensuing free-rider problem is so severe that the equilibrium number of experiments is at most one plus the number of experiments that a single agent would perform. When payoffs are private information and players can communicate via cheap talk, the socially optimal symmetric experimentation profile can be supported as a perfect Bayesian equilibrium for sufficiently optimistic prior beliefs. These results generalize to more than two players whenever the success probability per period is not too high. In particular, this is the case when successes occur at the jump times of a Poisson process and the period length is sufficiently small

Communication and Learning

We study strategic information transmission in an organization consisting of an infinite sequence of individual decision makers. Each decision maker chooses an action and receives an informative but imperfect signal of the once-and-for-all realization of an unobserved state. The state affects all individuals' preferences over present and future decisions. Decision makers do not directly observe the realized signals or actions of their predecessors. Instead, they must rely on cheap-talk messages in order to accumulate information about the state. Each decision maker is therefore both a receiver of information with respect to his decision, and a sender with respect to all future decisions. We show that if preferences are not perfectly aligned "full learning" equilibria - ones in which the individuals' posterior beliefs eventually place full weight on the true state - do not exist. This is so both in the case of private communication, in which each individual only hears the message of his immediate predecessor, and in the case of public communication, in which a decision maker hears the message of all his predecessors. Surprisingly, in the latter case full learning may be impossible even in the limit as all members of the organization become infinitely patient. We also consider the case where all individuals have access to a mediator who can work across time periods arbitrarily far apart. In this case full learning equilibria exist.Communication, Learning, Dynamic Strategic Information Transmission

On The Micro-Foundations of Contract Versus Conflict with Implications for International Peace-Making

This paper expands the micro-foundations of the traditional greed and grievance non-cooperative model of civil conflict. First, we allow for greed and grievance to be orthogonal, so that they may affect each other rather than being exogenous. Second, we allow for the reaction curves of both parties in non-cooperative games to be substitutes and not inevitably complementary, so a peaceful strategy from a group may be followed by a belligerent upsurge from the other. Third, we also allow for Diaspora transfers to rebel groups, thus generating a trade-off between the gains associated with peace and war among rebels. Fourth, we expand external aid in the form of fungible financing of government transfers ‘buying’ peace by allowing for mechanisms that induce behavioural change towards peace. These extensions provide a better understanding of conflict persistence, the consequences of competing international aid and sub-optimal sanctions provision (“cheap talk”) by the international community

Threat and Punishment in Public Good Experiments

Experimental studies of social dilemmas have shown that while the existence of a sanctioning institution improves cooperation within groups, it also has a detrimental impact on group earnings in the short run. Could the introduction of pre-play threats to punish have enough of a beneficial impact on cooperation, while not incurring the cost associated with actual punishment, so that they increase overall welfare? We report an experiment in which players can issue non-binding threats to punish others based on their contribution levels to a public good. After observing others’ actual contributions, they choose their actual punishment level. We find that threats increase the level of contributions significantly. Efficiency is improved, but only in the long run. However, the possibility of sanctioning differences between threatened and actual punishment leads to lower threats, cooperation and welfare, restoring them to levels equal to or below the levels attained in the absence of threats.threats, cheap talk, sanctions, public good, experiment