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Ordinal Cheap Talk

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Author Info

  • Archishman Chakraborty

    (CUNY-Baruch College)

  • Rick Harbaugh

    (Claremont McKenna College)

Abstract

Can comparative statements be credible even when absolute statements are not? For instance, can a professor credibly rank different students for a prospective employer even if she has an incentive to exaggerate the merits of each student? Or can an analyst credibly rank different stocks even if the client would be dubious about a recommendation to buy any one of them? We examine such problems in a multidimensional sender-receiver game where the sender has private information about multiple variables. We show that ordinal cheap talk, in which the variables are completely ordered by value or grouped into categories by value, can be credible even when interests are too opposed to support communication along any single dimension. Ordinal cheap talk is credible because it reveals both favorable and unfavorable information at the same time, thereby precluding any possibility of exaggeration. The communication gains from ordinal cheap talk can be substantial with only a couple of dimensions, and the payoffs from a complete ordering are asymptotically equivalent to full revelation as the number of variables becomes large. However, in various circumstances the sender can do better through a partial ordering that categorizes variables. Compared to other forms of cheap talk, ordinal cheap talk is exceedingly simple in that the sender only makes straightforward, comparative statements.

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Bibliographic Info

Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2003-05.

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Length:
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:clm:clmeco:2003-05

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Keywords: cheap talk; credibility; communication;

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References

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  1. Archishman Chakraborty & Nandini Gupta & Rick Harbaugh, 2004. "Best Foot Forward or Best for Last in a Sequential Auction?," Working Papers 2004-07, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  2. Vijay Krishna & John Morgan, 2001. "A Model Of Expertise," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 747-775, May.
  3. Marco Ottaviani & Francesco Squintani, 2002. "Non-Fully Strategic Information Transmission," Wallis Working Papers WP29, University of Rochester - Wallis Institute of Political Economy.
  4. Marco Battaglini, 2000. "Multiple Referrals and Multidimensional Cheap Talk," Econometric Society World Congress 2000 Contributed Papers 1557, Econometric Society.
  5. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
  6. Morgan, J. & Stocken, P., 1998. "An Analysis of Stock Recommendations," Papers 204, Princeton, Woodrow Wilson School - Public and International Affairs.
  7. Jackson, Matthew O. & Sonnenschein, Hugo F., 2003. "The Linking of Collective Decisions and Efficiency," Working Papers 1159, California Institute of Technology, Division of the Humanities and Social Sciences.
  8. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  9. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March.
  10. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  11. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 187-223, February.
  12. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
  13. Milgrom, Paul R & Weber, Robert J, 1982. "A Theory of Auctions and Competitive Bidding," Econometrica, Econometric Society, vol. 50(5), pages 1089-1122, September.
  14. Matthews, Steven A, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 347-69, May.
  15. Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series dp284, The Center for the Study of Rationality, Hebrew University, Jerusalem, revised Nov 2002.
  16. Phillip C. Stocken, 2000. "Credibility of Voluntary Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 359-374, Summer.
  17. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, vol. 79(1), pages 32-42, March.
  18. Sandeep Baliga & Stephen Morris, 2000. "Coordination, Spillovers, and Cheap Talk," Discussion Papers 1301, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  19. Rubinstein, Ariel, 1996. "Why Are Certain Properties of Binary Relations Relatively More Common in Natural Language?," Econometrica, Econometric Society, vol. 64(2), pages 343-55, March.
  20. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  21. Michael Ostrovsky & Michael Schwarz, 2003. "Equilibrium Information Disclosure: Grade Inflation and Unraveling," Harvard Institute of Economic Research Working Papers 1996, Harvard - Institute of Economic Research.
  22. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
  23. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
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Citations

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Cited by:
  1. Archishman Chakraborty & Nandini Gupta & Rick Harbaugh, 2000. "Best Foot Forward or Best for Last in a Sequential Auction?," Claremont Colleges Working Papers 2000-43, Claremont Colleges.
  2. Matthew O Jackson & Hugo F Sonnenschein, 2003. "The Linking of Collective Decisions and Efficiency," NajEcon Working Paper Reviews 666156000000000057, www.najecon.org.

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