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Authority and communication in the laboratory

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  • Lai, Ernest K.
  • Lim, Wooyoung

Abstract

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.

Suggested Citation

  • Lai, Ernest K. & Lim, Wooyoung, 2012. "Authority and communication in the laboratory," Games and Economic Behavior, Elsevier, vol. 74(2), pages 541-560.
  • Handle: RePEc:eee:gamebe:v:74:y:2012:i:2:p:541-560
    DOI: 10.1016/j.geb.2011.08.006
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Battaglini, Marco & Lai, Ernest & Lim, Wooyoung & Tao-yi Wang, Joseph, 2016. "The Informational Theory of Legislative Committees: An Experimental Analysis," CEPR Discussion Papers 11356, C.E.P.R. Discussion Papers.
    2. Silvia Dominguez Martinez & Randolph Sloof, 2016. "Communication versus (Restricted) Delegation: An Experimental Comparison," Tinbergen Institute Discussion Papers 16-050/VII, Tinbergen Institute.
    3. Wu, Jiabin, 2016. "Indirect Higher Order Beliefs and Cooperation," MPRA Paper 69600, University Library of Munich, Germany.
    4. Peter H. Kriss & Roberto Weber, 2013. "Organizational formation and change: lessons from economic laboratory experiments," Chapters,in: Handbook of Economic Organization, chapter 14 Edward Elgar Publishing.
    5. Katharina Eckartz & Christiane Ehses-Friedrich, 2014. "Strategic Communication: An Experimental Investigation," Jena Economic Research Papers 2014-007, Friedrich-Schiller-University Jena.
    6. Dominguez-Martinez, Silvia & Sloof, Randolph & von Siemens, Ferdinand A., 2014. "Monitored by your friends, not your foes: Strategic ignorance and the delegation of real authority," Games and Economic Behavior, Elsevier, vol. 85(C), pages 289-305.

    More about this item

    Keywords

    Cheap-talk communication; Decision-making authority; Delegation; Laboratory experiment; Level-k model;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • 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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