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

42 Pages Posted: 29 Oct 2015

See all articles by Thomas de Haan

Thomas de Haan

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

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE)

Randolph Sloof

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

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Date Written: November 2015

Abstract

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

Suggested Citation

de Haan, Thomas and Offerman, Theo and Sloof, Randolph, Money Talks? An Experimental Investigation of Cheap Talk and Burned Money (November 2015). International Economic Review, Vol. 56, Issue 4, pp. 1385-1426, 2015, Available at SSRN: https://ssrn.com/abstract=2682791 or http://dx.doi.org/10.1111/iere.12141

Thomas De Haan (Contact Author)

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

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Theo Offerman

University of Amsterdam - Faculty of Economics & Econometrics (FEE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4294 (Phone)
+31 20 525 5283 (Fax)

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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