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Equilibrium selection through forward induction in cheap talk games

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  • Antić, Nemanja
  • Persico, Nicola

Abstract

This paper provides a refinement that uniquely selects the ex-ante Pareto dominant equilibrium in a cheap talk game, provided one exists. The refinement works by embedding any cheap talk game into a class of two-stage games where: in stage 1 sender and receiver can, at a cost, alter their preferences; and in stage 2 the cheap talk game is played. For such games, we show that a forward induction logic can be invoked to select the ex-ante Pareto-dominant equilibrium in the second stage. Cheap talk games with exogenously fixed preferences are then treated as limiting cases of this larger class of games.

Suggested Citation

  • Antić, Nemanja & Persico, Nicola, 2023. "Equilibrium selection through forward induction in cheap talk games," Games and Economic Behavior, Elsevier, vol. 138(C), pages 299-310.
    • Handle: RePEc:eee:gamebe:v:138:y:2023:i:c:p:299-310
    DOI: 10.1016/j.geb.2023.01.006
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