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Ordinal Cheap Talk

  • Archishman Chakraborty

    (CUNY-Baruch College)

  • Rick Harbaugh

    (Claremont McKenna College)

Can comparative statements be credible even when absolute statements are not? For instance, can a professor credibly rank different students for a prospective employer even if she has an incentive to exaggerate the merits of each student? Or can an analyst credibly rank different stocks even if the client would be dubious about a recommendation to buy any one of them? We examine such problems in a multidimensional sender-receiver game where the sender has private information about multiple variables. We show that ordinal cheap talk, in which the variables are completely ordered by value or grouped into categories by value, can be credible even when interests are too opposed to support communication along any single dimension. Ordinal cheap talk is credible because it reveals both favorable and unfavorable information at the same time, thereby precluding any possibility of exaggeration. The communication gains from ordinal cheap talk can be substantial with only a couple of dimensions, and the payoffs from a complete ordering are asymptotically equivalent to full revelation as the number of variables becomes large. However, in various circumstances the sender can do better through a partial ordering that categorizes variables. Compared to other forms of cheap talk, ordinal cheap talk is exceedingly simple in that the sender only makes straightforward, comparative statements.

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Paper provided by Claremont Colleges in its series Claremont Colleges Working Papers with number 2003-05.

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Date of creation: Mar 2003
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Handle: RePEc:clm:clmeco:2003-05
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  12. Athey, Susan, 2002. "Monotone Comparative Statics Under Uncertainty," Scholarly Articles 3372263, Harvard University Department of Economics.
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  14. Steven A. Matthews, 1989. "Veto Threats: Rhetoric in a Bargaining Game," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 347-369.
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  17. Sandeep Baliga & Stephen Morris, 2000. "Coordination, Spillovers, and Cheap Talk," Discussion Papers 1301, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Marco Ottaviani & Francesco Squintani, 2002. "Non-Fully Strategic Information Transmission," Wallis Working Papers WP29, University of Rochester - Wallis Institute of Political Economy.
  19. Stephen Morris, 2001. "Political Correctness," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 231-265, April.
  20. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
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  23. Chakraborty, Archishman & Harbaugh, Rick, 2003. "Cheap talk comparisons in multi-issue bargaining," Economics Letters, Elsevier, vol. 78(3), pages 357-363, March.
  24. Susan Athey, 2002. "Monotone Comparative Statics under Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 117(1), pages 187-223.
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