Long Cheap Talk

Abstract

With talk, more can be achieved by long conversations than by a single message—even when one side is strictly better informed than the other. (Cheap means plain conversation—unmediated, nonbinding, and payoff-irrelevant.) This work characterizes the equilibrium payoffs for all two-person games in which one side is bet- ter informed than the other and talk is permitted. STRATEGIC INFORMATION TRANSMISSION has been studied in economic the- ory for over a quarter of a century. Most formal models in this area allow for at most one message from each player. Yet in practice, as in negotiation or bargaining, protracted exchanges of messages are often observed. Does this make economic sense? Can a long exchange convey substantive information that cannot be conveyed by a single message? Here we examine this question in the context of cheap The answer is yes: Long talk may lead to outcomes preferred by all players to those achievable with single messages. We will characterize all the equilibrium outcomes to which it can lead, in any two-person game in which one player is initially better informed than the other. Cheap talk is just that: cheap—neither costly nor binding; and talk— not some roundabout form of communication, like mediation. Unlike sig- nalling, 2 talk—plain conversation—is payoff-irrelevant; there is no cost. The players don't strike, don't get educated, and don't issue guarantees; they simply talk. They may or may not tell the truth, and may or may not believe each other. To be sure, that there is no credibility cost does not mean that there is no credibility; depending on the circumstances, the talk may itself create positive motivation for the players to believe each other (Examples 2.1 and 2.2 below). It is this motivation that forms the crux of our analysis.