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Bayesian persuasion with cheap talk

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  • Jain, Vasudha

Abstract

We study a sender–receiver game with a two-dimensional state of the world and state dependent sender preferences. The sender can commit to a signal as in the Bayesian persuasion framework for only one of the dimensions. We show how the ability to engage in cheap talk changes the optimal signal and makes the sender better off. The results have implications for some real world applications. For instance, they can help explain why schools prefer not to adopt grading policies that fully reveal student ability.

Suggested Citation

  • Jain, Vasudha, 2018. "Bayesian persuasion with cheap talk," Economics Letters, Elsevier, vol. 170(C), pages 91-95.
  • Handle: RePEc:eee:ecolet:v:170:y:2018:i:c:p:91-95
    DOI: 10.1016/j.econlet.2018.06.006
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    References listed on IDEAS

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    1. Raphael Boleslavsky & Christopher Cotton, 2015. "Grading Standards and Education Quality," American Economic Journal: Microeconomics, American Economic Association, vol. 7(2), pages 248-279, May.
    2. Emir Kamenica & Matthew Gentzkow, 2011. "Bayesian Persuasion," American Economic Review, American Economic Association, vol. 101(6), pages 2590-2615, October.
    3. Luis Rayo & Ilya Segal, 2010. "Optimal Information Disclosure," Journal of Political Economy, University of Chicago Press, vol. 118(5), pages 949-987.
    4. Archishman Chakraborty & Rick Harbaugh, 2010. "Persuasion by Cheap Talk," American Economic Review, American Economic Association, vol. 100(5), pages 2361-2382, December.
      • Archishman Chakraborty & Rick Harbaugh, 2006. "Persuasion by Cheap Talk," Working Papers 2006-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy, revised Oct 2009.
    5. William Chan & Li Hao & Wing Suen, 2007. "A Signaling Theory Of Grade Inflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(3), pages 1065-1090, August.
    6. Dubey, Pradeep & Geanakoplos, John, 2010. "Grading exams: 100,99,98,... or A,B,C?," Games and Economic Behavior, Elsevier, vol. 69(1), pages 72-94, May.
    7. Chakraborty, Archishman & Harbaugh, Rick, 2007. "Comparative cheap talk," Journal of Economic Theory, Elsevier, vol. 132(1), pages 70-94, January.
      • Archishman Chakraborty & Rick Harbaugh, 2004. "Comparative Cheap Talk," Working Papers 2004-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    8. Gilat Levy & Ronny Razin, 2007. "On the Limits of Communication in Multidimensional Cheap Talk: A Comment," Econometrica, Econometric Society, vol. 75(3), pages 885-893, May.
    9. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-1451, November.
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    More about this item

    Keywords

    Bayesian persuasion; Cheap talk; Partial commitment; Multidimensionality; Grading policy;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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