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An Optimal Signaling Equilibrium

Author

Listed:
  • Vladimir Karamychev

    (Erasmus University Rotterdam)

  • Bauke Visser

    (Erasmus University Rotterdam)

Abstract

This paper analyses the optimal combination of costly and costless messages that a Sender uses in a signaling game if he is able to choose among all equilibrium communication strategies. We provide a complete characterization of the equilibrium that maximizes the Sender's ex ante expected utility in case of uniformly distributed types and quadratic loss functions. First, the Sender often wants to avoid money burning by using the most informative cheap talk communication strategy. Second, if he does burn money, he avoids separation and only re-arranges the existing intervals of the most informative cheap talk equilibrium, possibly adding one extra interval. Money burning takes place in the second interval only.

Suggested Citation

  • Vladimir Karamychev & Bauke Visser, 2011. "An Optimal Signaling Equilibrium," Tinbergen Institute Discussion Papers 11-148/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20110148
    as

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    File URL: https://papers.tinbergen.nl/11148.pdf
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    References listed on IDEAS

    as
    1. Kartik, Navin, 2007. "A note on cheap talk and burned money," Journal of Economic Theory, Elsevier, vol. 136(1), pages 749-758, September.
    2. Thomas de Haan & Theo Offerman & Randolph Sloof, 2015. "Money Talks? An Experimental Investigation Of Cheap Talk And Burned Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1385-1426, November.
    3. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
    4. Green, Jerry R. & Stokey, Nancy L., 2007. "A two-person game of information transmission," Journal of Economic Theory, Elsevier, vol. 135(1), pages 90-104, July.
    5. Austen-Smith, David & Banks, Jeffrey S., 2000. "Cheap Talk and Burned Money," Journal of Economic Theory, Elsevier, vol. 91(1), pages 1-16, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2014. "Do Actions Speak Louder than Words?," Carlo Alberto Notebooks 355, Collegio Carlo Alberto.
    2. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2014. "Do Actions Speak Louder Than Words? Auditing, Disclosure, and Verification in Organizations," Working Papers gueconwpa~14-14-04, Georgetown University, Department of Economics, revised 13 Jun 2015.
    3. Anderlini, Luca & Gerardi, Dino & Lagunoff, Roger, 2016. "Auditing, disclosure, and verification in decentralized decision problems," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PA), pages 393-408.

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    More about this item

    Keywords

    Cheap talk; money burning; optimal equilibrium;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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