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Sweet Talk: A Theory of Persuasion

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  • Di Maggio, Marco

Abstract

This paper introduces a model of sweet talk in which a seller may acquire verifiable information and selectively disclose it to a buyer to negotiate a deal. We start by analyzing a model with common priors in which the seller generates information for two reasons: a trading motive and a profit motive that is, to make trade possible or to increase the gains from it. There exists a negotiation region in which the seller continues to reveal information even if trading is already profitable. We extend the model, allowing for different prior beliefs about the value of the object, arguing that a complementarity between the seller's confidence and the precision of his information endogenously arises. Appointing an optimistic salesman may be costly because he may destroy profitable trading opportunities. We also allow the seller to choose in which market to trade: a matching market with a fixed price or a haggling market. Our model also provides a testable difference between a model of trading with homogenous priors and one with heterogeneous priors and finds application in understanding contracts as reference points.

Suggested Citation

  • Di Maggio, Marco, 2009. "Sweet Talk: A Theory of Persuasion," MPRA Paper 18697, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:18697
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    References listed on IDEAS

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    More about this item

    Keywords

    persuasion games; haggling; negotiation; bargaining; heterogeneous priors; overconfidence; consummate and perfunctory performance; verifiable information.;

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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