Ill-Defined Versus Precise Pre-Play Communication in the Traveler's Dilemma

Abstract

Basu (1994) argues that claims above the Nash equilibrium in the Traveler's Dilemma may be an equilibrium in a model where rational players use reasoning in ill-defined categories. In this model, players may form beliefs over ill-defined strategies such as "choosing a high claim" and best respond to these beliefs with high claims. We investigate this argument in a laboratory experiment with pre-play communication. We find that pre-play communication in ill-defined categories does not help raise claims. Surprisingly, claims are highest when players can communicate using precise numerical messages even though, theoretically, such communication fails to be self-enforcing in this environment.

Keywords: Traveler's Dilemma, Cheap talk, Language of communication

JEL Classification: C72, C92