Receiver’s sensitivity and strategic information transmission in multi-sender cheap talk

Abstract

This study examines how a CEO’s sensitivity affects information transmission from multiple unit managers when they communicate strategically during decision-making for technology investment. We develop a simple cheap talk model comprising one CEO and K unit managers, wherein the CEO makes a decision to maximize the units’ profit after the managers reveal their preference for the decision through cheap talk. We demonstrate that the expected total profit improves when sensitivity to the opinion of a manager whose expected preference is moderate among all managers increases. The driving force of the results is termed as alignment effect; increasing sensitivity to a moderate opinion decreases the difference between the expected CEO’s decision and the managers’ ideals. Furthermore, some implications on the decision-making process in technology investment within firms are discussed.