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Money Talks? An Experimental Investigation Of Cheap Talk And Burned Money

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Listed:
  • Thomas de Haan
  • Theo Offerman
  • Randolph Sloof

Abstract

We experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used. Theoretically, many equilibria exist side by side, in which senders use either costless messages, money, or both. We find that senders prefer to communicate through costless messages. Only when the interest disalignment between sender and receiver increases does cheap talk tend to break down and high sender types start burning money to enhance the credibility of their costless messages. A behavioral model assuming that sellers bear a cost of lying fits the data best.

Suggested Citation

  • Thomas de Haan & Theo Offerman & Randolph Sloof, 2015. "Money Talks? An Experimental Investigation Of Cheap Talk And Burned Money," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1385-1426, November.
  • Handle: RePEc:wly:iecrev:v:56:y:2015:i:4:p:1385-1426
    DOI: 10.1111/iere.12141
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    4. Vladimir Karamychev & Bauke Visser, 2011. "An Optimal Signaling Equilibrium," Tinbergen Institute Discussion Papers 11-148/1, Tinbergen Institute.
    5. Konstantinos Ioannidis, 2022. "Habitual Communication," Tinbergen Institute Discussion Papers 22-016/I, Tinbergen Institute.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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