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Communicaiton games with optional verification

Author

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  • SCHOPOHL Simon,

    (CEREC, Université Saint-Louis and CORE, UCLouvain)

Abstract

We analyse a Sender-Receiver game in which the Sender can choose between a costless cheap-talk message and a costly verifiable message. The Sender knows the true state of the world, while the Receiver only learns about the state through the message of the Sender. The utility of both players depends on an action the Receiver chooses. We keep the assumptions about the utility functions and about the messages to a minimum and state conditions for fully revealing equilibria. Under the assumption of "smooth" preferences and utility functions we show that a fully revealing equilibrium in which the Sender uses both her message types can only exist as long as the state space and action space are discrete. We illustrate this result for the classical example of quadratic loss utilities. In a continuous setting we show that there can only exist a fully revealing equilibrium in which the Sender uses different message types in different states if we allow for costless verification in some states of the world or if the utility function of at least one player is discontinuous.

Suggested Citation

  • SCHOPOHL Simon,, 2018. "Communicaiton games with optional verification," LIDAM Discussion Papers CORE 2018013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2018013
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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