Cheap Talk and Reputation in Repeated Pretrial Negotiation

Abstract

Infinitely repeated interaction between a defendant and a plaintiff can enhance the credibility of cheap talk and improve efficiency in outcomes that would be feasible without cheap talk. The basic driving force is reputation effect. If t he players are concerned about their reputation, cheap talk cannot be taken as meaningless even in a game where the interests of the players are sufficiently conflicting, because possible current gains from opportunistic behavior can be wiped out by future losses in payoff from damaged.