Meaningful Talk

Abstract

This paper develops a semiotic-inferential model of verbal communication for incomplete information games: a language is seen as a set of conventional signs that point to types, and the credibility of a message depends on the strategic context. Formally, there is an encoding-decoding step where the receiver can understand the sender's message if and only if a common language is used, and an inferential step where the receiver may either trust the message's literal meaning or disregard it when updating priors. The epistemic requirement that information be transmitted through the literal meaning of the message uttered leads to an equilibrium concept distinct from a Perfect Bayesian Equilibrium, ruling out informative equilibria where language is not used in its ordinary sense. The paper also proposes a refinement by which the sender selects among equilibria if all sender types are willing to play the same equilibrium.

Keywords: Cheap talk, Language, Literal and equilibrium meaning, Signs, Comprehensibility, Relevance, Trust, Credibility, Equilibrium selection

JEL Classification: D83, C72