Information Transmission with Cheap and Almost-Cheap Talk

Joint with: Theory Workshop

Communication in practice typically occurs through multiple channels, not all of which permit costless misrepresentation of private information. Accordingly, I study a model of strategic information transmission based on Crawford and Sobel (1982), but allow for communication through both cheap talk and messages on a second dimension

where misreporting is costly. Using a forward-induction refinement, I characterize a class of equilibria with appealing properties. As the costs of misreporting become small, talk is almost-cheap, and the model is arbitrarily close to the pure cheap talk model. However, not all equilibria of the pure cheap talk model are limits of the equilibria with misreporting costs, and a simple condition is derived to determine which cheap talk equilibria are robust in this sense. I show that under a standard condition, the most-informative cheap talk equilibrium is indeed robust, whereas the babbling equilibrium is not unless it is the unique cheap talk equilibrium. This provides a novel rationale for focussing on the more informative equilibria of the cheap talk game, without invoking cooperative justifcations such as the Pareto criterion.

For more information, contact Antonio Merlo.