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Cheap Talk, Information, and Coordination -Experimental Evidence

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  • Charness, Gary
  • Grosskopf, Brit

Abstract

Costless and non-binding pre-play communication (cheap talk) has been found to often be effective in achieving efficient outcomes in experimental games. However, in previous two-player experimental games each player was informed about both his payoff and the action of the other player in the pair. In the field, people may engage in cheap talk and subsequently learn their payoffs, but frequently only learn their own payoffs and not the actions of other people. We model this uncertainty in the framework of a 2x2 coordination game, in which one choice leads to the same payoff regardless of the action of the other player. We vary whether messages about intended play are permitted, and whether participants are informed about the other person's play. Cheap talk is found to be effective, as there is much more coordination in both Signal treatments than in either of the No Signal treatments. We also find that information about the other person’s play appears to increase coordination when messages are permitted. However, in the No Signal treatments, the round-to-round changes in choices induced by this additional information are unable to overcome the apparent pessimism about the feasibility of coordination without a signal.

Suggested Citation

  • Charness, Gary & Grosskopf, Brit, 2001. "Cheap Talk, Information, and Coordination -Experimental Evidence," University of California at Santa Barbara, Economics Working Paper Series qt65r278zs, Department of Economics, UC Santa Barbara.
  • Handle: RePEc:cdl:ucsbec:qt65r278zs
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    References listed on IDEAS

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    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
    2. R. Mark Isaac & James M. Walker, 1988. "Group Size Effects in Public Goods Provision: The Voluntary Contributions Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 103(1), pages 179-199.
    3. Harsanyi John C., 1995. "A New Theory of Equilibrium Selection for Games with Incomplete Information," Games and Economic Behavior, Elsevier, vol. 10(2), pages 318-332, August.
    4. Russell Cooper & Douglas V. DeJong & Robert Forsythe & Thomas W. Ross, 1992. "Communication in Coordination Games," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 739-771.
    5. Hurkens, Sjaak, 1996. "Multi-sided Pre-play Communication by Burning Money," Journal of Economic Theory, Elsevier, vol. 69(1), pages 186-197, April.
    6. Duffy, John & Feltovich, Nick, 2002. "Do Actions Speak Louder Than Words? An Experimental Comparison of Observation and Cheap Talk," Games and Economic Behavior, Elsevier, vol. 39(1), pages 1-27, April.
    7. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
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    Cited by:

    1. Charness, Gary & Grosskopf, Brit, 2004. "What makes cheap talk effective? Experimental evidence," Economics Letters, Elsevier, vol. 83(3), pages 383-389, June.

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