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.
Volume (Year): 76 (2008)
Issue (Month): 1 (January)
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