Strategic Information Transmission Research Articles

Should the fox guard the henhouse? Category captainship arrangement as a strategic information transmission mechanism

Retailers may collaborate with key suppliers to manage some specified categories. This collaboration is often formalized as a “captainship arrangement” between the retailer and her leading supplier in the category. The designated “category captain” assists the retailer with category management decisions. We show that captainship arrangements have the potential to generate a valuable information effect for the retailer: nonprice decisions by the category captain can reveal information that allows the retailer to improve profit through better retail pricing decisions. We also show that captainship arrangements have the greatest potential to make the retailer better off in categories where the retailer is highly uncertain about the impact of category resources on brands' demand. Moreover, the more substitutable the brands in the category, the more valuable a captainship arrangement is to the retailer. The information effect of category captainship is robust to a variety of arrangements. It is present under delegation arrangements (where the retailer delegates the task of category resources deployment to the captain), as well as under advisory arrangements (where the retailer retains control over category decisions, relying on the captain for advice). Interestingly, we find that delegation has a “better” potential to transmit information than advisory. Furthermore, in case of an advisory arrangement, the retailer is better off keeping the captain's advice confidential rather than sharing it with the other suppliers.

Strategic transmission of imperfect information: why revealing evidence (without proof) is difficult

In our cheap-talk setting, an expert privately observes multiple binary signals, her soft evidence, about a continuous state of the world and then communicates with a decision-maker. While direct transmission of evidence entails communicating the underlying signals, indirect transmission of evidence entails communicating a summary statistic of her evidence. We first establish that fully informative equilibria exist if the conflict of interest is small. Otherwise, direct transmission of evidence is impossible, as withholding one part of the soft evidence in the communication necessarily induces incentives to manipulate the report on the other part. On the contrary, indirect transmission of evidence remains partially informative for intermediate conflicts of interest. Finally, we introduce the possibility of certification. We show that, if the costs of certification are low, the expert can fully reveal her evidence regardless of the conflict of interest.

Cheap talk with prior-biased inferences

We investigate how prior-biased inferences change players' strategic incentives and result in novel welfare implications in the canonical framework of strategic information transmission. The ex ante social welfare achieved in our model exceeds the upper bound characterized in the standard environment without prior bias. The welfare gain stems from the fact that the receiver's prior bias weakens the link between the sender's message and the receiver's response without contaminating the actual content of the messages. We further show that direct communication is optimal among all possible communication protocols in the presence of a sufficient degree of prior bias.

An inexpert expert

ABSTRACT We explore strategic information transmission when there is noise at the observation stage, when an expert observes signals, before he advises a policymaker. That is, the expert might be inexpert. We account for the fact that his signals might be totally uninformative, which is commonly known by players. We find that this inexpertise translates into a greater preference misalignment between players and that this yields a less informative equilibrium. We show that our results follow from the fact that the strategic effect of noise – the welfare change exclusive due to changes in the equilibrium partition – is always negative. Numerical simulations show that noise might be beneficial if the policymaker openly disagrees about noise chances. This makes the point that whether noise is beneficial or not crucially depends on how early in the game it arises, and also whether noise chances are commonly known by players or not.

Communication-Enhancing Vagueness

I experimentally investigate how vague language changes the nature of communication in a biased strategic information transmission game. Counterintuitively, when both precise and imprecise messages can be sent, in aggregate, senders are more accurate, and receivers trust them more than when only precise messages can be sent. I also develop and structurally estimate a model showing that vague messages increase communication between boundedly rational players, especially if some senders are moderately honest. Moderately honest senders avoid stating an outright lie by using vague messages to hedge them. Then, precise messages are more informative because there are fewer precise lies.

Strategic information transmission with sender's approval: The single-crossing case

We consider games in which an informed sender first talks at no cost to a receiver; then, the latter proposes a decision and, finally, the sender accepts the proposal or “exits”. We make the following assumptions: the sender has finitely many types, the receiver's decision is real-valued, utility functions over decisions are concave, single-peaked and single-crossing, exit is damaging to the receiver. In this setup, it may happen that babbling equilibria necessarily involve exit. We nevertheless propose a constructive algorithm that achieves a pure perfect Bayesian equilibrium without exit in every game of the class considered.

Two-sided strategic information transmission

We investigate a cheap talk model in which a decision maker and an expert are both privately informed. Both players observe independent signals that jointly determine ideal actions for the players, and the decision maker can send a cheap talk message to the expert, which is followed by the cheap talk of the expert and then the action of the decision maker. In equilibrium, the strategy of the decision maker is not monotonic, and the revelation of the decision maker concerning her information does not necessarily result in welfare improvement of the players. In particular, in models in which optimal actions are additively and/or multiplicatively separable in the information of two players and their preferences are represented by quadratic loss functions, the information revelation of the decision maker cannot facilitate information transmitted from the expert.

Strategic communication with a small conflict of interest

This paper analyzes strategic information transmission between a sender and a receiver with similar objectives. We provide a first-order approximation of the equilibrium behavior in the general version of the Crawford and Sobel's (1982) model with a small bias. Our analysis goes beyond the usual uniform-quadratic setting: we uncover how the state-dependent bias and the non-uniform state distribution influence the precision with which each state of the world is communicated. We illustrate the approach by providing novel comparative statics results in different applications.

Who Do You Want to Talk to? Theory and Experiment of Network Formation under Strategic Information Transmission

Who Do You Want to Talk to? Theory and Experiment of Network Formation under Strategic Information Transmission

On Strategic Transmission of Gradually Arriving Information

The main insight of the literature on strategic information transmission is that even a small conflict of interest between a fully informed sender (e.g., a financial adviser) and an uninformed receiver (an investor) often poses considerable difficulties for effective communication. However, in many real-life situations, the sender is not fully informed at the outset but gradually studies the case before offering advice. The gradual arrival of information to the sender weakens the strategic barriers between the players and significantly improves communication.

Who Do You Want to Talk to? Theory and Experiment of Network Formation Under Strategic Information Transmission

Who Do You Want to Talk to? Theory and Experiment of Network Formation Under Strategic Information Transmission

Strategic Transmission of Imperfect Information - Why Revealing Evidence (Without Proof) Is Difficult

In our cheap-talk setting, an expert privately observes multiple binary signals, her soft evidence, about a continuous state of the world and then communicates with a decision-maker. While direct transmission of evidence entails communicating details on and potentially revealing each signal, indirect transmission of evidence entails communicating a summary statistics of her evidence. We first establish that fully informative equilibria exist if the conflict of interest is small. Otherwise, direct transmission of evidence is impossible, as neglecting one part of the soft evidence in her communication necessarily induces incentives to manipulate the report on the other part. On the contrary, indirect transmission of evidence remains partially informative for intermediate conflicts of interest. Finally, we introduce the possibility of verification. We show that, if the costs of verification are low, the expert can fully reveal her evidence regardless of the conflict of interest.

Do humans rationally discount biased signals? Evidence from the Crawford-Sobel Game

In this paper I re-examine data from Cai and Wang's (2006) laboratory simulation of the Crawford-Sobel “strategic information transmission” game. Cai and Wang focus on the amount of information that senders in the game transmit to receivers, and largely ignore any effects of the bias of the information. More specific, Cai and Wang (and nearly all other researchers of whom I am aware) do not examine what I call the no-policy-bias implication of the Crawford-Sobel game. This implication is that the final policy that receivers choose, in expectation, should equal the policy that they would have chosen had the senders sent no signal. That is, the receivers should rationally discount any bias in the signals, and the senders should not be able systematically to fool the receivers. However, contrary to the theory of the Crawford-Sobel game, in practice, all versions of the Cai-Wang experiment produced a policy bias. Further, the bias was systematic—it was always in the direction that the senders preferred. Elsewhere (Groseclose, 2011) I estimate the media lambda, a number between zero and one that expresses the degree to which a signal sender can fool a receiver. The results of the Cai-Wang experiment produce a media lambda of approximately .32.

Strategic information transmission with sender’s approval

We consider sender–receiver games in which the sender has finitely many types and the receiver makes a decision in a compact set. The new feature is that, after the cheap talk phase, the receiver makes a proposal to the sender, which the latter can reject in favor of an outside option. We focus on situations in which the sender’s approval is absolutely crucial to the receiver, namely, on equilibria in which the sender does not exit at the approval stage. A nonrevealing equilibrium without exit may not exist. Our main results are that if the sender has only two types or if the receiver’s preferences over decisions do not depend on the type of the sender, there exists a (perfect Bayesian Nash) partitional equilibrium without exit, in which the sender transmits information by means of a pure strategy. The previous existence results do not extend: we construct a counter-example (with three types for the sender and type-dependent utility functions) in which there is no equilibrium without exit, even if the sender can randomize over messages. We establish additional existence results for (possibly mediated) equilibria without exit in the three type case.

Corrigendum to Crawford and Sobel (1982) “Strategic Information Transmission”

In their analysis of strategic information transmission, Vincent Crawford and Joel Sobel (1982) showed the existence of partition equilibria (Theorem 1). Although the theorem itself is correct, the proof contains some incorrect statements. We present a counter‐example and provide a correct version of the proof.

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

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.

Senior civil servants in Quebec and strategic information transmission: A game theory‐driven approach

AbstractRecently, certain mediatized events in Quebec have demonstrated that senior civil servants could control the information intended for elected officials. Is it possible that senior civil servants behave strategically in sharing information with politicians? Based on a game theory‐driven approach, the study offers in‐depth testimonies to illustrate the strategic dimensions of information transmission, which sometimes occurs between ADMs and elected officials. Quebec senior civil servants occasionally benefit from discretionary authority with respect to information and use it to promote specific lines of thought. Furthermore, elected officials and senior civil servants sharing similar views on specific public issues could facilitate information transmission.

Lie Detection: A Strategic Analysis of the Verifiability Approach

The Verifiability Approach is a lie detection method based on the insight that truth-tellers provide precise details whereas liars sometimes remain vague to avoid being exposed. We provide a-game-theoretic analysis of a speaker who wants to be acquitted and an investigator who prefers to find out the truth. The investigator can verify the speaker’s statement at some cost; verification gets more reliable the more details are provided. If, after a falsified statement, the investigator convicts, an additional obstruction penalty is imposed. We derive all the equilibria of the game and thereby the conditions under which the investigator can infer additional information from the speaker's statement at face value. Strategic information revelation by the speaker and verification by the investigator then necessarily work in tandem. Improvements in reliability result in more valuable (strategic) information transmission, whereas a harsher obstruction penalty does not as soon as a lower limit is met.

Strategic information transmission despite conflict

We analyze a standard Crawford and Sobel’s cheap talk game in a two dimensional framework, with uniform prior, quadratic preferences and a binary disclosure rule. Information might be credibly revealed by the Sender to the Receiver when players are able to strategically set aside their conflict. We exploit the few symmetries of the game parameters to derive multiple continua of equilibria, when varying the Sender’s bias over the entire euclidean space. In particular, credible information might be revealed whatever the bias. Then we show that the equilibria exhibited characterize the game’s full set of pure strategy equilibria.

Dynamics of Strategic Information Transmission in Social Networks

We develop a dynamic framework of strategic information transmission through cheap talk in a social network. Privately informed agents have different preferences about the action to be implemented by each agent and repeatedly communicate with their neighbors in the network. We first characterize myopic (best response) equilibria as well as fully informative myopic equilibria. Second, we provide a sufficient condition for the existence of a fully informative farsighted (perfect Bayesian) equilibrium. Fully informative myopic and farsighted equilibria essentially take a particular simple form: all communication is truthful along a tree subnetwork. We also consider societies in which both myopic and farsighted agents are present and analyze equilibrium welfare. Furthermore, we extend our model to public communication and investigate the implications of our results for the design of institutions. Finally, our results suggest that myopic equilibria tend to Pareto dominate farsighted equilibria, in particular if a social planner has designed the network optimally.