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Authority and communication in the laboratory

  • Lai, Ernest K.
  • Lim, Wooyoung

We report findings from experiments on two delegation–communication games. An uninformed principal chooses whether to fully delegate her decision-making authority to an informed agent or to retain the authority and communicate with the agent via cheap talk to obtain decision-relevant information. In the game in which the delegation outcome is payoff-dominated by both the truthful and the babbling communication outcomes, we find that principal-subjects almost always retain their authority and agent-subjects communicate truthfully. Significantly more choices of delegation than of communication are observed in another game in which the delegation outcome payoff-dominates the unique babbling communication outcome; yet there is a non-negligible fraction of principal-subjects who holds on to their authority and agent-subjects who transmits some information. A level-k analysis of the game indicates that a principal-subject “under-delegates” due to the belief that her less-than-fully-strategic opponent will provide information; such belief is in turn consistent with the actual play.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 74 (2012)
Issue (Month): 2 ()
Pages: 541-560

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Handle: RePEc:eee:gamebe:v:74:y:2012:i:2:p:541-560
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