Communication Equilibria and Bounded Rationality
In this paper, we generalize the notion of a communication equilibrium (Forges 1986, Myerson 1986) of a game with incomplete information by introducing two new types of correlation device, namely extended and Bayesian devices. These new devices explicitly model the `thinking process' of the device, i.e. the manner in which it generates outputs conditional on inputs. We proceed to endow these devices with both information processing errors, in the form of non-partitional information, and multiple transition and prior distributions, and prove that these two properties are equivalent in this context, thereby generalizing the result of Brandenburger, Dekel and Geanakoplos (1988). We proceed to discuss the Revelation Principle for each device, and conclude by nesting a certain class of `cheap-talk' equilibria of the underlying game within Bayesian communication equilibria. These so-called fallible talk equilibria cannot be generated by standard communication equilibria.
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- Forges, F., 1984.
"An approach to communication equilibria,"
CORE Discussion Papers
1984035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Lehrer, Ehud, 1996. "Mediated Talk," International Journal of Game Theory, Springer;Game Theory Society, vol. 25(2), pages 177-88.
- D. Samet, 1987.
"Ignoring Ignorance and Agreeing to Disagree,"
749, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Shapley, Lloyd S. & Shubik, Martin, 1969. "On market games," Journal of Economic Theory, Elsevier, vol. 1(1), pages 9-25, June.
- Françoise Forges, 1990. "Equilibria with Communication in a Job Market Example," The Quarterly Journal of Economics, Oxford University Press, vol. 105(2), pages 375-398.
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