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Efficiency, communication and honesty

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  • Demichelis, Stefano

    () (Università degli studi di Pavia)

  • Weibull, Jörgen

    () (Dept. of Economics, Stockholm School of Economics)

Abstract

We here develop a model of pre-play communication that generalizes the cheap-talk approach by allowing players to have a lexicographic preference, second to the payoffs in the underlying game, for honesty. We formalize this by way of an honesty (or truth) correspondence between actions and statements, and postulate two axioms met by natural languages. The model is applied to finite and symmetric two-player games and we establish that honest communication and play of the Pareto dominant Nash equilibrium together characterize the unique evolutionarily stable set in generic and symmetric n×n-coordination games. In particular, this holds even in Aumann's (1990) example of a Pareto dominant equilibrium that is not self-enforcing.

Suggested Citation

  • Demichelis, Stefano & Weibull, Jörgen, 2006. "Efficiency, communication and honesty," SSE/EFI Working Paper Series in Economics and Finance 645, Stockholm School of Economics, revised 28 Nov 2006.
  • Handle: RePEc:hhs:hastef:0645
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    References listed on IDEAS

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    Cited by:

    1. Kimmo Eriksson & Brent Simpson, 2007. "Deception and price in a market with asymmetric information," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 2, pages 23-28, February.

    More about this item

    Keywords

    efficiency; communication; coordination; honesty; evolutionary stability;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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