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Meaningful talk

Listed author(s):
  • Jorge M. Streb
  • Gustavo Torrens

In cheap- and costly-talk games, an informed player (the sender) sends a verbal message about its type to an uninformed player (the receiver). The use of Nash equilibrium, and its refinements, implies that the assignment of messages to types is what determines the message’s interpretation. We propose instead an equilibrium concept where the verbal message itself is the crucial piece of new information in the communication process between sender and receiver, and truth and trust functions are incorporated in the inferential process that takes place in parallel. The sender’s message leads the receiver to update priors only if it is comprehensible (i.e., uttered in a language shared by both players), relevant (i.e., more specific than the common priors), and trusted. Trust requires a leap of faith because a verbal message never proves what it states; hence, mistrust equilibria are possible even if an informative equilibrium exists where the sender’s message is true. Trust equilibria may be uninformative, in which case linguistic conventions show through what is not stated, e.g., “This car is a lemon.” This framework strives to integrate, on the one hand, the game-theoretic view that the equilibrium meaning depends on the sender’s strategic incentives, with, on the other, the linguistic view that messages are verbal symbols that convey common understandings through their literal meaning.

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Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 443.

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Length: 28 pages
Date of creation: Feb 2011
Date of revision: May 2017
Handle: RePEc:cem:doctra:443
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  1. McNollgast, 2007. "The Political Economy of Law," Handbook of Law and Economics, Elsevier.
  2. Callander, Steven & Wilkie, Simon, 2007. "Lies, damned lies, and political campaigns," Games and Economic Behavior, Elsevier, vol. 60(2), pages 262-286, August.
  3. Robert J. Leonard, 1992. "Reading Cournot, Reading Nash / or / The Emergence and Stabilization of the Nash equilibrium," Cahiers de recherche du Département des sciences économiques, UQAM 9214, Université du Québec à Montréal, Département des sciences économiques.
  4. Harsanyi, John C, 1995. "Games with Incomplete Information," American Economic Review, American Economic Association, vol. 85(3), pages 291-303, June.
  5. Elinor Ostrom, 2010. "Beyond Markets and States: Polycentric Governance of Complex Economic Systems," American Economic Review, American Economic Association, vol. 100(3), pages 641-672, June.
  6. Coase, R H, 1976. "Adam Smith's Views of Man," Journal of Law and Economics, University of Chicago Press, vol. 19(3), pages 529-546, October.
  7. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
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