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Managerial Economics of Cheap Talk

Author

Listed:
  • Saori Chiba

    () (Dept. of Management, Università Ca' Foscari Venice)

  • Kaiwen Leong

    () (Nanyang Technological University)

Abstract

Consider an uninformed decision maker (DM) who communicates with a partially informed speaker (S) through cheap talk. DM can choose a project to implement or the outside option of no project. We show that if the agentsÕ ex-ante rankings over projects do not coincide, then this conflict of interest can reduce SÕs incentive to pander and hence facilitate information transmission. Intuitively, SÕs ex-ante bias and the incentive to pander affect SÕs information revelation in opposite directions and hence offset each other. We also explore the relationship between information transmission and managerial issues such as delegation, disclosure, and interpersonal authority.

Suggested Citation

  • Saori Chiba & Kaiwen Leong, 2013. "Managerial Economics of Cheap Talk," Working Papers 24, Department of Management, Università Ca' Foscari Venezia.
  • Handle: RePEc:vnm:wpdman:60
    as

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    File URL: http://virgo.unive.it/wpideas/storage/2013wp24.pdf
    File Function: First version, 2013
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    References listed on IDEAS

    as
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    5. Saori Chiba & Kaiwen Leong & Kaiwen Leong, 2013. "Cheap Talk with Outside Options," Working Papers 16, Department of Management, Università Ca' Foscari Venezia.
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    More about this item

    Keywords

    Cheap Talk; Delegation; Disclosure; Interpersonal Authority; Pandering;

    JEL classification:

    • 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
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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