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Efficiency, communication and honesty

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Author Info
Demichelis, Stefano () (Università degli studi di Pavia)
Weibull, Jörgen () (Dept. of Economics, Stockholm School of Economics)

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Abstract

We here develop a model of pre-play communication that generalizes the cheap-talk approach by allowing players to have a lexicographic preference, second to the payoffs in the underlying game, for honesty. We formalize this by way of an honesty (or truth) correspondence between actions and statements, and postulate two axioms met by natural languages. The model is applied to finite and symmetric two-player games and we establish that honest communication and play of the Pareto dominant Nash equilibrium together characterize the unique evolutionarily stable set in generic and symmetric n×n-coordination games. In particular, this holds even in Aumann's (1990) example of a Pareto dominant equilibrium that is not self-enforcing.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 645.

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Length: 22 pages
Date of creation: 01 Feb 2006
Date of revision: 28 Nov 2006
Publication status: Forthcoming in American Economic Review.
Handle: RePEc:hhs:hastef:0645

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Related research
Keywords: efficiency; communication; coordination; honesty; evolutionary stability;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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References listed on IDEAS
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Cited by:
(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.)

  1. Kimmo Eriksson & Brent Simpson, 2007. "Deception and price in a market with asymmetric information," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 23-28, February. [Downloadable!]
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