Money Talks? An Experimental Investigation of Cheap Talk and Burned Money

Tinbergen Institute Discussion Paper 11-069/1

51 Pages Posted: 22 Apr 2011

See all articles by Thomas de Haan

Thomas de Haan

University of Amsterdam - Faculty of Economics and Business (FEB)

T. J. S. Offerman

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

Randolph Sloof

University of Amsterdam - Faculty of Economics & Business (FEB); Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: April 13, 2011

Abstract

We experimentally study the strategic transmission of information in a setting where both cheap talk and money can be used for communication purposes. Theoretically a large number of equilibria exist side by side, in which senders either use costless messages, money, or a combination of the two. We find that senders prefer to communicate through costless messages. Only when the interest disalignment between sender and receiver increases, cheap talk tends to break down and high sender types start burning money to enhance the credibility of their costless messages. A behavioral model due to Kartik (2009) assuming that sellers bear a cost of lying fits the data best.

Keywords: cheap talk, burning money, lying costs, experiment

JEL Classification: C91, D82

Suggested Citation

de Haan, Thomas and Offerman, T. J. S. and Sloof, Randolph, Money Talks? An Experimental Investigation of Cheap Talk and Burned Money (April 13, 2011). Tinbergen Institute Discussion Paper 11-069/1, Available at SSRN: https://ssrn.com/abstract=1813732 or http://dx.doi.org/10.2139/ssrn.1813732

Thomas De Haan (Contact Author)

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

T. J. S. Offerman

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Randolph Sloof

University of Amsterdam - Faculty of Economics & Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 5241 (Phone)
+31 20 525 4310 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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