Context and Communication

Abstract

This article studies the role that shared context plays in facilitating communication and, through it, cooperation. In a sender-receiver framework, I first formally characterize the extent to which interlocutors can use shared context—defined as the sum total of common knowledge held between them—to reduce communication costs by endowing messages with multiple, context-sensitive meanings. I then present experimental evidence showing that shared context not only improves communicative efficiency but also increases honest play in a strategic setting where transacting parties can exploit ambiguity by feigning to misunderstand their partner. Taken together, these results shed light on the inherent challenge of writing complete contracts and suggest practical strategies for enhancing communicative efficiency across a variety of social, economic, and technological domains.

Keywords: Communication Costs, Shared Context, Common Knowledge, Information Design JEL Codes: D23, D82, D83, D85, D86

JEL Classification: D23, D85, D86, D83, D82