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Dynamic Information Revelation in Cheap Talk

Maxim Ivanov

The B.E. Journal of Theoretical Economics, 2015, vol. 15, issue 2, 251-275

Abstract: This paper studies a multi-stage version of Crawford and Sobel’s communication game. In every period the receiver determines a test about the unknown state whose result is privately observed by the sender. After the sender sends a costless message about an outcome of the test, the receiver selects a test in the next period. After a finite number of periods of interaction, the receiver makes a decision. The paper offers a sequence of tests that refine sender’s information step-by-step and preserve truthtelling in every period. This sequence allows the receiver to learn the state in a subinterval of the state space with an arbitrary precision and has appealing theoretical properties. It consists of simple binary tests which reveal whether the state is above a certain cutoff, where the cutoffs are monotonic across periods and independent from results of the previous tests. Finally, we show that the relative payoff efficiency of multi-stage interaction compared to a single-stage game increases without a bound as the bias in preferences tends to zero.

Keywords: communication; information; cheap talk (search for similar items in EconPapers)
JEL-codes: C72 D81 D82 D83 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (12)

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DOI: 10.1515/bejte-2014-0017

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