Cheap talk with prior-biased inferences

Yong-Ju Lee, Wooyoung Lim and Chen Zhao

Games and Economic Behavior, 2023, vol. 138, issue C, 254-280

Abstract: We investigate how prior-biased inferences change players' strategic incentives and result in novel welfare implications in the canonical framework of strategic information transmission. The ex ante social welfare achieved in our model exceeds the upper bound characterized in the standard environment without prior bias. The welfare gain stems from the fact that the receiver's prior bias weakens the link between the sender's message and the receiver's response without contaminating the actual content of the messages. We further show that direct communication is optimal among all possible communication protocols in the presence of a sufficient degree of prior bias.

Keywords: Communication; Information transmission; Cheap talk; Prior bias; Non-Bayesian updating (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 D91 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:138:y:2023:i:c:p:254-280

DOI: 10.1016/j.geb.2022.12.009

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