Reputational Cheap Talk with Misunderstanding

Posted: 28 Nov 2009

See all articles by Alexander Guembel

Alexander Guembel

Toulouse School of Economics, University of Toulouse Capitole

Silvia Rossetto

University of Toulouse 1 - Toulouse School of Economics (TSE)

Date Written: November 2009

Abstract

We consider a cheap talk game with a sender who has a reputational concern for an ability to predict a state of the world correctly, and where receivers may misunderstand the message sent. When communication between the sender and each receiver is private, we identify an equilibrium in which the sender only discloses the least noisy information. Hence, what determines the amount of information revealed is not the absolute noise level of communication, but the extent to which the noise level may vary. The resulting threshold in transmission noise for which information is revealed may differ across receivers, but is unrelated to the quality of the information channel. When information transmission has to be public, a race to the bottom results: the cut-off level for noise of transmitted information now drops to the lowest cut-off level for any receiver in the audience.

Keywords: Communication; Noise, Cheap talk, Reputational concerns

JEL Classification: D82, G14, G20

Suggested Citation

Guembel, Alexander and Rossetto, Silvia, Reputational Cheap Talk with Misunderstanding (November 2009). Games and Economic Behavior, Vol. 67, No. 2, 2009. Available at SSRN: https://ssrn.com/abstract=1514354

Alexander Guembel (Contact Author)

Toulouse School of Economics, University of Toulouse Capitole ( email )

Manufacture des Tabacs
21, allee de Brienne
Toulouse, 31000
France

Silvia Rossetto

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

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