Project Selection and Competitive Cheap Talk: An Experimental Study

27 Pages Posted: 19 Dec 2019

See all articles by John Hamman

John Hamman

Florida State University - Department of Economics

Miguel Martinez-Carrasco

Universidad de los Andes, Colombia - School of Management

Eric Schmidbauer

University of Central Florida

Date Written: August 2, 2019

Abstract

When agents with private information compete for resources from a principal and are biased towards their own favored projects (e.g., a CEO decides which division manager’s project to fund) an agency problem arises. However, possible future interaction can mitigate this problem even without reputational concerns, since an agent who induces acceptance of a low-valued project today consumes resources that crowd out even better opportunities that may arrive in the future. Using the theoretical model from Schmidbauer (Games & Economic Behavior, 2017), we devise experiments to address this organizational environment. Specifically, we study the incentives of competing agents to strategically communicate about their own favored project’s value (high or low) to an uninformed decision maker when new projects arrive over time. After observing all advice from agents, the decision maker decides which project to adopt, if any. If no project is adopted subjects enter the next period with new independently drawn projects and continue indefinitely until one project is adopted. We hypothesize that truth telling is easier to support the larger is the benefit from a high-quality project or the less likely it is to occur, but harder to support as agent competition grows. Our findings are broadly consistent with these hypotheses.

Keywords: cheap talk, multiple senders, competition

JEL Classification: D82, G31

Suggested Citation

Hamman, John and Martinez-Carrasco, Miguel and Schmidbauer, Eric, Project Selection and Competitive Cheap Talk: An Experimental Study (August 2, 2019). Available at SSRN: https://ssrn.com/abstract=3497665 or http://dx.doi.org/10.2139/ssrn.3497665

John Hamman

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

Miguel Martinez-Carrasco

Universidad de los Andes, Colombia - School of Management ( email )

Carrera Primera # 18A-12
Bogotá
Colombia

Eric Schmidbauer (Contact Author)

University of Central Florida ( email )

4000 Central Florida Blvd
Orlando, FL 32816-1400
United States

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