Reputation for Confidence

Gáti, Laura and Amy Handlan

No 20734, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: In a cheap-talk communication game, we model how a sender communicates their noisy forecasts while taking into account their own uncertainty (confidence) and the receiver’s perception of the sender’s uncertainty (reputation for confidence). This creates a mismatch between the sender’s and receiver’s interpretation of the announcement. This misunderstanding friction induces the sender to communicate with partial transparency and deliberate imprecision. Moreover, with higher confidence (lower reputation) announcements are more precise. To test the theory, we leverage unique data on Federal Reserve communication deliberations to create new text-based measures as direct counterparts to the model. We find communication patterns are largely consistent with the model except the Fed’s communication strategy underreacts to reputation compared to the model.

JEL-codes: C49 E52 E58 (search for similar items in EconPapers)
Date: 2025-10
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