AbstractWe incorporate semiotics into economic theory, modeling communication with an encoding-decoding step where the sender transmits a message that the receiver can understand if and only if a common natural language is used. We add an inferential step where the receiver may either believe the literal meaning or disregard it in updating priors. This prevents conflating encrypted and ordinary messages, eliminating informative equilibria where language is used arbitrarily. Unlike cheap and costly talk models, informative equilibria exist only if the senders’ payoffs improve relative to the uninformative equilibrium. In informative equilibria, natural language works as an equilibrium selection mechanism.
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Bibliographic InfoPaper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 443.
Length: 41 pages
Date of creation: Feb 2011
Date of revision: Mar 2014
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More information through EDIRC
cheap talk; signs; linguistic symbols; literal meaning; equilibrium meaning; credibility; relevance;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-EVO-2011-03-12 (Evolutionary Economics)
- NEP-GTH-2011-03-12 (Game Theory)
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