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Confidence and Competence in Communication

This paper studies information transmission between an uninformed decision maker (receiver) and an informed player (sender) who have asymmetric beliefs ("con?fidence") on the sender?s ability ("competence") to observe the state of nature. We fi?nd that even when the material payoffs of are perfectly aligned, the sender?s over- and underconfi?dence on his information give rise to information loss in communication, although they do not by themselves completely eliminate information transmission in equilibrium. However, an underconfi?dent sender may prefer no communication to informative communication. We also show that when the sender is biased, overconfidence can lead to more information transmission and welfare improvement.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 222.

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Length: 32
Date of creation: 13 Sep 2013
Date of revision:
Handle: RePEc:edn:esedps:222
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  1. Che, Yeon-Koo & Kartik, Navin, 2006. "Opinion as Incentives," MPRA Paper 6094, University Library of Munich, Germany, revised 15 Nov 2007.
  2. Hanming Fang & Giuseppe Moscarini, 2004. "Morale Hazard," Yale School of Management Working Papers ysm386, Yale School of Management.
  3. Kohei Kawamura, 2011. "A Model of Public Consultation: Why is Binary Communication so Common?," Economic Journal, Royal Economic Society, vol. 121(553), pages 819-842, 06.
  4. Nahum D. Melumad & Toshiyuki Shibano, 1991. "Communication in Settings with No. Transfers," RAND Journal of Economics, The RAND Corporation, vol. 22(2), pages 173-198, Summer.
  5. Andreas Blume & Oliver Board & Kohei Kawamura, 2007. "Noisy Talk," ESE Discussion Papers 167, Edinburgh School of Economics, University of Edinburgh.
  6. Matthew Gentzkow & Jesse Shapiro, 2005. "Media Bias and Reputation," NBER Working Papers 11664, National Bureau of Economic Research, Inc.
  7. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  8. Cesarini, David & Sandewall, Örjan & Johannesson, Magnus, 2003. "Confidence Interval Estimation Tasks and the Economics of Overconfidence," SSE/EFI Working Paper Series in Economics and Finance 535, Stockholm School of Economics.
  9. Anat R. Admati & Paul Pfleiderer, 2004. "Broadcasting Opinions with an Overconfident Sender," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 467-498, 05.
  10. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August.
  11. Goltsman, Maria & Hörner, Johannes & Pavlov, Gregory & Squintani, Francesco, 2009. "Mediation, arbitration and negotiation," Journal of Economic Theory, Elsevier, vol. 144(4), pages 1397-1420, July.
  12. Kent Daniel & David Hirshleifer & Avanidhar Subrahmanyam, 1998. "Investor Psychology and Security Market Under- and Overreactions," Journal of Finance, American Finance Association, vol. 53(6), pages 1839-1885, December.
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