Does Cheap Talk Promote Coordination Under Asymmetric Information? An Experimental Study on Global Games

Posted: 3 Jun 2019

See all articles by Jieyi Duan

Jieyi Duan

Institute of Social and Economic Research, Osaka University

Hajime Kobayashi

Kansai University - Faculty of Economics

Tatsuhiro Shichijo

Osaka Prefecture University - Graduate School of Economics

Date Written: March 30, 2019

Abstract

This study experimentally investigates the role of two-sided cheap talk in decisions under asymmetric information. Unlike previous studies, our study also considers endogenous investment timing. In our experiments, subjects play two-player global games with asymmetric information. Before making any decision, a subject sends the other player in the same group a free message that takes the form of a continuous numerical value. We observe that subjects tend to send messages that accurately reflect their own private signals. This tendency is stronger when a subject can observe the other player's decision by delaying his own decision at a small cost. Further, our data present some evidence that subjects tend to reach a fully revealing equilibrium by using threshold strategies according to their own private signals and the other players' messages. We also observe that a subject’s welfare improves significantly under such cheap talk.

Keywords: Global Games, Cheap Talk, Endogenous Timing, Welfare Analysis

JEL Classification: C70, C91, D82, D83

Suggested Citation

Duan, Jieyi and Kobayashi, Hajime and Shichijo, Tatsuhiro, Does Cheap Talk Promote Coordination Under Asymmetric Information? An Experimental Study on Global Games (March 30, 2019). Available at SSRN: https://ssrn.com/abstract=3388455 or http://dx.doi.org/10.2139/ssrn.3388455

Jieyi Duan (Contact Author)

Institute of Social and Economic Research, Osaka University ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan
08040386623 (Phone)
5620031 (Fax)

Hajime Kobayashi

Kansai University - Faculty of Economics ( email )

3-3-35 Yamatecho
Suita, Osaka, 564-8680
Japan

Tatsuhiro Shichijo

Osaka Prefecture University - Graduate School of Economics ( email )

Gakuen cho 1-1
Sakai, Osaka Prefecture 599-8531
Japan

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