Cheap Talk with Outside Options

42 Pages Posted: 29 Sep 2013  

Saori Chiba

Kyoto University - Graduate School of Economics

Kaiwen Leong

Nanyang Technological University (NTU)

Date Written: September 2013

Abstract

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.

Keywords: Cheap Talk, Information Transmission, Experts

JEL Classification: D82, D83

Suggested Citation

Chiba, Saori and Leong, Kaiwen, Cheap Talk with Outside Options (September 2013). Department of Management, Università Ca' Foscari Venezia Working Paper No. 16/2013. Available at SSRN: https://ssrn.com/abstract=2332689 or http://dx.doi.org/10.2139/ssrn.2332689

Saori Chiba (Contact Author)

Kyoto University - Graduate School of Economics ( email )

Japan
+81-75-753-3500 (Phone)

HOME PAGE: http://www.econ.kyoto-u.ac.jp/~chiba/

Kaiwen Leong

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

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