Cheap Talk with an Informed Receiver

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Cheap Talk with an Informed Receiver

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Junichiro Ishida
Takashi Shimizu

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Junichiro Ishida

Abstract

This paper examines the effectiveness of cheap talk when the receiver is imperfectly informed. We show that the receiver's prior knowledge becomes an impediment to efficient communication in a model with the discrete state space: in general, the more the receiver is informed, the less information she can extract from the sender. In fact, when the receiver is as informed as the sender, no information can be conveyed via cheap talk for an arbitrarily small preference bias. This draws sharp contrast to the conventional setup where there is always a fully separating equilibrium as long as the preference bias is sufficiently small. We relate this result to issues that are critical for organizational design, such as the allocation of decision-making authority and the span of control.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0746.

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Date of creation: Jun 2009
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Handle: RePEc:dpr:wpaper:0746

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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.:

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(explanations, 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.)

Junichiro Ishida, 2009. "Why Hierarchy? Communication and Information Acquisition in Organizations," ISER Discussion Paper 0751, Institute of Social and Economic Research, Osaka University. [Downloadable!]

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This page was last updated on 2009-11-25.

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