Selecting Cheap-Talk Equilibria
There are typically multiple equilibrium outcomes in the Crawford-Sobel (CS) model of strategic information transmission. This paper identifies a simple condition on equilibrium payoffs, called NITS (no incentive to separate), that selects among CS equilibria. Under a commonly used regularity condition, only the equilibrium with the maximal number of induced actions satisfies NITS. We discuss various justifications for NITS, including perturbed cheap-talk games with nonstrategic players or costly lying. We also apply NITS to other models of cheap talk, illustrating its potential beyond the CS framework. Copyright The Econometric Society 2008.
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Volume (Year): 76 (2008)
Issue (Month): 1 (01)
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