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Pre-Play Communications And Credibility: A Test Of Aumann'S Conjecture

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  • Charness, Gary B

Abstract

The effectiveness of pre-play communication in achieving efficient outcomes has long been a subject of controversy. In some environments, cheap talk may help to achieve coordination. However, Aumann conjectures that, in a variant of the Stag Hunt game, a signal for efficient play is not self-enforcing and concludes that an agreement to play [the efficient outcome] conveys no information about what the players will do." Harsanyi and Selten (1988) cite this example as an illustration of risk-dominance vs. payoff-dominance. Farrell and Rabin (1996) agree with the logic, but suspect that cheap talk will nonetheless achieve efficiency. The conjecture is tested with one-way communication. When the sender first chooses a signal and then an action, there is impressive coordination: a 94% probability for the potentially efficient (but risky) play, given a signal for efficient play. Without communication, efforts to achieve efficiency were unsuccessful, as the proportion of B moves is only 35%. I also test a hypothesis that the order of the action and the signal affects the results, finding that the decision order is indeed important. Aumann's conjecture is rejected when the signal is determined prior to the action. However, the signal's credibility diminishes when the sender is known to have first chosen an action, supporting the conjecture, as the results are not statistically distinguishable from those in the no signal case. Some applications and issues in communication and coordination are discussed.

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Bibliographic Info

Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt01j786tj.

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Date of creation: 01 Sep 1998
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Handle: RePEc:cdl:ucsbec:qt01j786tj

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Keywords: cheap talk; signaling; payoff dominance; experiment;

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Cited by:
  1. Sandeep Baliga & Stephen Morris, 2000. "Coordination, Spillovers, and Cheap Talk," Discussion Papers 1301, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Sandeep Baliga & Stephen Morris, 1998. "Cheap Talk and Co-ordination with Payoff Uncertainty," Cowles Foundation Discussion Papers 1203, Cowles Foundation for Research in Economics, Yale University.
  3. Paola Manzini & Abdolkarim Sadrieh & Nicolaas J. Vriend, 2002. "On Smiles, Winks, and Handshakes as Coordination Devices," Working Papers 456, Queen Mary, University of London, School of Economics and Finance.
  4. Rosemarie Nagel & Antonio Cabrales & Roc Armenter, 2002. "Equilibrium selection through incomplete information in coordination games: An experimental study," Economics Working Papers 601, Department of Economics and Business, Universitat Pompeu Fabra.

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