Cheap talk when the receiver has uncertain information sources

Abstract

In this paper we analyze a cheap-talk model with a partially informed receiver. In clear contrast to the previous literature, we find that there is a case where the receiver’s prior knowledge enhances the amount of information conveyed via cheap talk. The point of departure is our explicit focus on the “dual role” of the sender’s message in our context: When the receiver’s prior belief is subject to higher-order uncertainty, the sender’s message provides information not only about the true state but also about the reliability of the receiver’s private information. Building on this result, we argue that whether information acquisition and communication are complements or substitutes depends crucially on the extent of uncertainty regarding the information source.