Money talks? An Experimental Investigation of Cheap Talk and Burned Money
AbstractWe 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.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-069/1.
Date of creation: 18 Apr 2011
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cheap talk; burning money; lying costs; experiment;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-30 (All new papers)
- NEP-CBE-2011-04-30 (Cognitive & Behavioural Economics)
- NEP-EXP-2011-04-30 (Experimental Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Austen-Smith & Jeffrey S. Banks, 1998.
"Cheap Talk and Burned Money,"
1245, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Serra Garcia, M. & Damme, E.E.C. van & Potters, J.J.M., 2010. "Which Words Bond? An Experiment on Signaling in a Public Good Game (replaced by CentER DP 2011-139)," Discussion Paper 2010-33, Tilburg University, Center for Economic Research.
- Santiago Sanchez-Pages & Marc Vorsatz, 2007.
"Enjoy the Silence: An Experiment on Truth-Telling,"
ESE Discussion Papers
155, Edinburgh School of Economics, University of Edinburgh.
- Vladimir Karamychev & Bauke Visser, 2011. "An Optimal Signaling Equilibrium," Tinbergen Institute Discussion Papers 11-148/1, Tinbergen Institute.
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