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Cheap Talk with an Informed Receiver

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  • Junichiro Ishida
  • Takashi Shimizu

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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Bibliographic Info

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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References

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  1. Battaglini Marco, 2004. "Policy Advice with Imperfectly Informed Experts," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-34, April.
  2. Austen-Smith David, 1993. "Interested Experts and Policy Advice: Multiple Referrals under Open Rule," Games and Economic Behavior, Elsevier, vol. 5(1), pages 3-43, January.
  3. 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.
  4. Vijay Krishna & John Morgan, 2001. "A Model Of Expertise," The Quarterly Journal of Economics, MIT Press, vol. 116(2), pages 747-775, May.
  5. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  6. Navin Kartik, 2009. "Strategic Communication with Lying Costs," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1359-1395.
  7. Doraszelski Ulrich & Gerardi Dino & Squintani Francesco, 2003. "Communication and Voting with Double-Sided Information," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-41, August.
  8. Marco Ottaviani & Peter Sorensen, 1999. "Professional Advice," Game Theory and Information 9906003, EconWPA.
  9. Joseph Farrell and Robert Gibbons., 1988. "Cheap Talk Can Matter in Bargaining," Economics Working Papers 8863, University of California at Berkeley.
  10. Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, vol. 70(4), pages 1379-1401, July.
  11. Dino Gerardi & Richard McLean & Andrew Postlewaite, 2005. "Aggregation of Expert Opinions," PIER Working Paper Archive 05-016, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  12. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  13. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
  14. Marco Ottaviani & Peter Norman Sørensen, 2006. "Reputational cheap talk," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 155-175, 03.
  15. repec:rje:randje:v:37:y:2006:1:p:155-175 is not listed on IDEAS
  16. Olszewski, Wojciech, 2004. "Informal communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 180-200, August.
  17. Matthews, Steven A. & Postlewaite, Andrew, 1989. "Pre-play communication in two-person sealed-bid double auctions," Journal of Economic Theory, Elsevier, vol. 48(1), pages 238-263, June.
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Cited by:
  1. Chen, Ying, 2012. "Value of public information in sender–receiver games," Economics Letters, Elsevier, vol. 114(3), pages 343-345.
  2. Junichiro Ishida, & Takashi Shimizu, 2012. "Can More Information Facilitate Communication?," ISER Discussion Paper 0839, Institute of Social and Economic Research, Osaka University.
  3. Sidartha Gordon & Ying Chen, 2014. "Information Transmission in Nested Sender-Receiver Games," Sciences Po publications 2014-04, Sciences Po.
  4. Junichiro Ishida, 2009. "Why Hierarchy? Communication and Information Acquisition in Organizations," ISER Discussion Paper 0751, Institute of Social and Economic Research, Osaka University.
  5. Junichiro Ishida & Takashi Shimizu, 2012. "Asking One Too Many? Why Leaders Need to Be Decisive," ISER Discussion Paper 0857, Institute of Social and Economic Research, Osaka University.

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