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Money talks? An Experimental Investigation of Cheap Talk and Burned Money

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  • Thomas de Haan

    ()
    (University of Amsterdam)

  • Theo Offerman

    ()
    (University of Amsterdam)

  • Randolph Sloof

    ()
    (University of Amsterdam)

Abstract

We 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 Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-069/1.

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Date of creation: 18 Apr 2011
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Handle: RePEc:dgr:uvatin:20110069

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Web page: http://www.tinbergen.nl

Related research

Keywords: cheap talk; burning money; lying costs; experiment;

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  1. 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.
  2. Santiago Sánchez-Pagés & Marc Vorsatz, 2009. "Enjoy the silence: an experiment on truth-telling," Experimental Economics, Springer, vol. 12(2), pages 220-241, June.
  3. Austen-Smith, David & Banks, Jeffrey S., 2000. "Cheap Talk and Burned Money," Journal of Economic Theory, Elsevier, vol. 91(1), pages 1-16, March.
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Cited by:
  1. Vladimir Karamychev & Bauke Visser, 2011. "An Optimal Signaling Equilibrium," Tinbergen Institute Discussion Papers 11-148/1, Tinbergen Institute.

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