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Cheap talk with multiple strategically interacting audiences: An experimental study

Listed author(s):
  • Li X.
  • Peeters R.J.A.P.

    (GSBE)

We consider a cheap-talk setting that mimics the situation where an incumbent firm the sender is endowed with incentives to understate the true size of the market demand to two potential entrants the receivers. Although our experimental data reveals that senders messages convey truthful information and this is picked up by the receivers, this overcommunication relative to standard theoretical prediction does not enhance efficient entry levels and payoffs to beyond what can be achieved without any communication. The reason is that receivers fail to optimally translate the information received in their entry decision, possibly due to overcautiousness.

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File URL: http://pub.maastrichtuniversity.nl/af6eeddf-2c3c-4d9e-9655-dcef87886758
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Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 035.

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Date of creation: 2013
Handle: RePEc:unm:umagsb:2013035
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Web page: http://www.maastrichtuniversity.nl/
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  1. Marco Battaglini & Uliana Makarov, 2011. "Cheap Talk with Multiple Audiences: an Experimental Analysis," Working Papers 1304, Princeton University, Department of Economics, Econometric Research Program..
  2. Sanchez-Pages, Santiago & Vorsatz, Marc, 2007. "An experimental study of truth-telling in a sender-receiver game," Games and Economic Behavior, Elsevier, vol. 61(1), pages 86-112, October.
  3. repec:pri:metric:p012_2011_revised%20july%2010%202012_battaglini_makarov.pdf is not listed on IDEAS
  4. Cai, Hongbin & Wang, Joseph Tao-Yi, 2006. "Overcommunication in strategic information transmission games," Games and Economic Behavior, Elsevier, vol. 56(1), pages 7-36, July.
  5. Farrell, J. & Gibbons, R., 1989. "Cheap Talk With Two Audiences," Working papers 518, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Dohmen, Thomas J. & Falk, Armin & Huffman, David & Sunde, Uwe & Schupp, Jürgen & Wagner, Gert G., 2009. "Individual risk attitudes: Measurement, determinants and behavioral consequences," Munich Reprints in Economics 20049, University of Munich, Department of Economics.
  7. repec:hoo:wpaper:e-89-7 is not listed on IDEAS
  8. Sanjiv Erat & Uri Gneezy, 2012. "White Lies," Management Science, INFORMS, vol. 58(4), pages 723-733, April.
  9. Joseph Tao-yi Wang & Michael Spezio & Colin F. Camerer, 2010. "Pinocchio's Pupil: Using Eyetracking and Pupil Dilation to Understand Truth Telling and Deception in Sender-Receiver Games," American Economic Review, American Economic Association, vol. 100(3), pages 984-1007, June.
  10. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
  11. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  12. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
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