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Comparative Cheap Talk

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  • Archishman Chakraborty

    (Zicklin School of Business, Baruch College, CUNY)

  • Rick Harbaugh

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

When are comparative statements credible? For instance, when can a professor rank different students for an employer, or a stock analyst rank different stocks for a client? We show that simple complementarity conditions ensure that an expert with private information about multiple issues can credibly rank the issues for a decision maker. By restricting the expert’s ability to exaggerate, multidimensional cheap talk of this form permits communication when it would not be credible in a single dimension. The communication gains can be substantial with even a couple of issues, and the complete ranking is asymptotically equivalent to full revelation as the number of issues becomes large. Nevertheless, partial rankings are sometimes more credible and/or more profitable for the expert than the complete ranking. We confirm the robustness of comparative cheap talk to asymmetries that are not too large. Moreover, we show that for a sufficiently large number of independent issues there are always some issues sufficiently symmetric to permit influential cheap talk.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2004-08-chakraborty-harbaugh.pdf
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Bibliographic Info

Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2004-08.

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Date of creation: 2004
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Publication status: Published in Journal of Economic Theory, 2007
Handle: RePEc:iuk:wpaper:2004-08

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Keywords: multidimensional cheap talk; complementarities;

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References

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  1. Archishman Chakraborty & Nandini Gupta & Rick Harbaugh, 2006. "Best foot forward or best for last in a sequential auction?," RAND Journal of Economics, RAND Corporation, vol. 37(1), pages 176-194, 03.
  2. Levy, Gilat & Razin, Ronny, 2004. "Multidimensional Cheap Talk," CEPR Discussion Papers 4393, C.E.P.R. Discussion Papers.
  3. Marco Battaglini, 2002. "Multiple Referrals and Multidimensional Cheap Talk," Econometrica, Econometric Society, vol. 70(4), pages 1379-1401, July.
  4. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November.
  5. Archishman Chakraborty & Nandini Gupta & Rick Harbaugh, 2002. "Seller Cheap Talk in Common Value Auctions," Claremont Colleges Working Papers 2002-30, Claremont Colleges.
  6. Michael Ostrovsky & Michael Schwarz, 2003. "Equilibrium Information Disclosure: Grade Inflation and Unraveling," Harvard Institute of Economic Research Working Papers 1996, Harvard - Institute of Economic Research.
  7. David Spector, 2000. "Rational Debate And One-Dimensional Conflict," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 181-200, February.
  8. Baliga, Sandeep & Morris, Stephen, 2002. "Co-ordination, Spillovers, and Cheap Talk," Journal of Economic Theory, Elsevier, vol. 105(2), pages 450-468, August.
  9. Wouter Dessein, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 811-838.
  10. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 557-73, October.
  11. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  12. Morgan, John & Stocken, Phillip C, 2003. " An Analysis of Stock Recommendations," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 183-203, Spring.
  13. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August.
  14. Phillip C. Stocken, 2000. "Credibility of Voluntary Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 359-374, Summer.
  15. Stephen Morris, 1999. "Political Correctness," Cowles Foundation Discussion Papers 1242, Cowles Foundation for Research in Economics, Yale University.
  16. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March.
  17. Susan Athey, 2002. "Monotone Comparative Statics Under Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 187-223, February.
  18. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
  19. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
  20. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  21. Marco Ottaviani & Francesco Squintani, 2002. "Non-Fully Strategic Information Transmission," Wallis Working Papers WP29, University of Rochester - Wallis Institute of Political Economy.
  22. Matthew O Jackson & Hugo F Sonnenschein, 2007. "Overcoming Incentive Constraints by Linking Decisions -super-1," Econometrica, Econometric Society, vol. 75(1), pages 241-257, 01.
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