Costless Messages Research Articles

Like Me, You Say? a Model and Experiment on Supporting In-Group Bias through Cheaptalk

This paper presents a simple application and experimental test of a theoretical model of discriminatory social preferences. First, it establishes conditions under which a specification of “defection aversion” can support an equilibrium in which costless messages engender cooperative strategies in a one-shot Prisoners’ Dilemma (PD) game. The main result is a signaling equilibrium with full separation of signals, and cooperation whenever the social distance is less than a certain threshold level. The second part of the paper is an experimental application and test of a discrete version of the theory. Using the minimal group paradigm, subjects are put into a set of interlocking groups. 116 subjects played 4 games each (within-subjects) under different informational (treatment) contexts. Results are broadly consistent with the theory: people cooperate more when faced with group members. They are also less “honest” with their messages when messages are sequential than when they are simultaneous, which suggests a strategic motivation to the messages. A somewhat unexpected empirical result shows that the threshold social distance supporting cooperation is lower when the group information is based on simultaneous cheap talk than when it is exogenously revealed. Noting that the empirical rates of honest messaging are also rather far from the 100% predicted by the model, a theoretical extension shows that smaller social neighborhoods are in fact a straightforward prediction when the truth of messages is uncertain.

Reminder game: Indirectness in persuasion

A seller wants a buyer to choose a good whose value is the seller's private information. The buyer's memory is limited, and she decides whether to remember the good conditional on a signal about the value. The seller then decides whether to send a costless message that can remind the buyer of the good. Since the reminder could convey the seller's private information in equilibrium, whether to send a reminder is a non-trivial question. It is shown that costless messages can be informative in equilibrium in spite of the strong conflict of interest between the players. In any informative equilibrium, silence conveys positive information about the value, whereas the reminder conveys negative information.

Coordination with decentralized costly communication

Prior experimental evidence finds decentralized pre-play communication to facilitate efficient coordination among interdependent agents. However, the kind of communication in these experiments is unrealistic for many economic and organizational contexts, as it consists of costless messages from every agent, which are sent every time a coordination game is played. We study how communication use and its effectiveness change when one considers that sending messages is often both costly and voluntary, and investigate the effectiveness of alternative communication policies employed by a firm. The policies differ in the degree to which message use is voluntary and in who bears the costs for communication. Imposing even small communication costs on employees dramatically reduces message use, but message use is more prevalent and efficient coordination occurs more frequently when the proportion of message costs borne by employees is small. We conclude that under certain conditions, large but incomplete subsidies for using communication can be an optimal solution for obtaining efficient coordination in firms.

MONEY TALKS? AN EXPERIMENTAL INVESTIGATION OF CHEAP TALK AND BURNED MONEY

We experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used. Theoretically, many equilibria exist side by side, in which senders use either costless messages, money, or both. We find that senders prefer to communicate through costless messages. Only when the interest disalignment between sender and receiver increases does cheap talk tend to break down and high sender types start burning money to enhance the credibility of their costless messages. A behavioral model assuming that sellers bear a cost of lying fits the data best.

Dynamic Information Revelation in Cheap Talk

AbstractThis paper studies a multi-stage version of Crawford and Sobel’s communication game. In every period the receiver determines a test about the unknown state whose result is privately observed by the sender. After the sender sends a costless message about an outcome of the test, the receiver selects a test in the next period. After a finite number of periods of interaction, the receiver makes a decision. The paper offers a sequence of tests that refine sender’s information step-by-step and preserve truthtelling in every period. This sequence allows the receiver to learn the state in a subinterval of the state space with an arbitrary precision and has appealing theoretical properties. It consists of simple binary tests which reveal whether the state is above a certain cutoff, where the cutoffs are monotonic across periods and independent from results of the previous tests. Finally, we show that the relative payoff efficiency of multi-stage interaction compared to a single-stage game increases without a bound as the bias in preferences tends to zero.

An Optimal Signaling Equilibrium

This paper analyses the optimal combination of costly and costless messages that a Sender uses in a signaling game if he is able to choose among all equilibrium communication strategies. We provide a complete characterization of the equilibrium that maximizes the Sender's ex ante expected utility in case of uniformly distributed types and quadratic loss functions. First, the Sender often wants to avoid money burning by using the most informative cheap talk communication strategy. Second, if he does burn money, he avoids separation and only re-arranges the existing intervals of the most informative cheap talk equilibrium, possibly adding one extra interval. Money burning takes place in the second interval only.

Words speak louder than money

Should one use words or money to foster trust of the other party if no means of enforcing trustworthiness are available? This paper reports an experiment studying the effectiveness of two types of mechanisms for promoting trust: a costly gift and a costless message as well as their mutual interaction. We nest our findings in the standard version of the investment game. Our data provide evidence that while both stand-alone mechanisms enhance trust, a gift performs significantly worse than a message. Moreover, when a gift is combined with sending a message, it can be counterproductive.

Money Talks? An Experimental Investigation of Cheap Talk and Burned Money

We experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used for communication purposes. Theoretically a large number of equilibria exist side by side, in which senders either use costless messages, money, or a combination of the two. We find that senders prefer to communicate through costless messages. Only when the interest disalignment between sender and receiver increases, cheap talk tends to break down and high sender types start burning money to enhance the credibility of their costless messages. A behavioral model due to Kartik (2009) assuming that sellers bear a cost of lying fits the data best.

Words Speak Louder Than Money

Should one use words or money to foster trust of the other party if no means of enforcing trustworthiness are available? This paper reports an experiment studying the effectiveness of two types of mechanisms for promoting trust: a costly gift and a costless message as well as their mutual interaction. We nest our findings in the standard version of the investment game. Our data provide evidence that while both stand-alone mechanisms enhance trust, and a gift performs significantly worse than a message. Moreover, when a gift is combined with sending a message, it can be counterproductive.

Protection for Free? The Political Economy of U.S. TariffSuspensions

This paper studies the political influence of individual firms on Congressional decisions to suspend tariffs on U.S. imports of intermediate goods. We develop a model in which firms influence the government by transmitting information about the value of protection, via costless messages (cheap-talk) and costly messages (lobbying). We estimate our model using firm-level data on tariff suspension bills and lobbying expenditures from 1999-2006, and find that indeed verbal opposition by import-competing firms, with no lobbying, significantly reduces the probability of a suspension being granted. In addition, lobbying expenditures by proponent and opponent firms sway this probability in opposite directions.

Protection for Free? The Political Economy of U.S. Tariff Suspensions

This paper studies the political influence of individual firms on Congressional decisions to suspend tariffs on U.S. imports of intermediate goods. We develop a model in which firms influence the government by transmitting information about the value of protection, via costless messages (cheap-talk) and costly messages (lobbying). We estimate our model using firm-level data on tariff suspension bills and lobbying expenditures from 1999-2006, and find that indeed verbal opposition by import-competing firms, with no lobbying, significantly reduces the probability of a suspension being granted. In addition, lobbying expenditures by proponent and opponent firms sway this probability in opposite directions.

Cheap Talk, Coordination, and Evolutionary Stability

Asymmetric information games where the informed player can send a costless message ( sender–receiver games) typically have equilibria where meaningful communication occurs. We therefore know such "cheap talk" can matter. Still, even when there is no conflict of interest, there are also equilibria where no information transmission occurs. This paper shows that for a class of games with perfectly coinciding interests modeled as asymmetric contests, where players are unsure of which role they will have, only meaningful communication is evolutionarily stable. Journal of Economic Literature Classification Numbers C70, C72, D82.