Cheap Talk with Outside Options
Università Ca' Foscari Venezia - Department of Management
Nanyang Technological University (NTU)
Department of Management, Università Ca' Foscari Venezia Working Paper No. 16/2013
In Crawford and Sobel (1982) (CS), a sender (S) uses cheap talk to persuade a receiver (R) to select an action as profitable to S as possible. This paper shows that the presence of an outside option – that is, allowing R to avoid taking any action, yielding state-independent reservation utilities to R and S – has an important qualitative impact on the results. Contrary to CS, in this model, the informativeness of communication is not always decreasing in the level of conflict of interest. Relatedly, communication can be more informative than in CS.
Number of Pages in PDF File: 42
Keywords: Cheap Talk, Information Transmission, Experts
JEL Classification: D82, D83
Date posted: September 29, 2013
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