Equilibrium selection through forward induction in cheap talk games

Nemanja Antić and Nicola Persico

Games and Economic Behavior, 2023, vol. 138, issue C, 299-310

Abstract: This paper provides a refinement that uniquely selects the ex-ante Pareto dominant equilibrium in a cheap talk game, provided one exists. The refinement works by embedding any cheap talk game into a class of two-stage games where: in stage 1 sender and receiver can, at a cost, alter their preferences; and in stage 2 the cheap talk game is played. For such games, we show that a forward induction logic can be invoked to select the ex-ante Pareto-dominant equilibrium in the second stage. Cheap talk games with exogenously fixed preferences are then treated as limiting cases of this larger class of games.

Keywords: Cheap talk; Equilibrium selection; Forward induction (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:138:y:2023:i:c:p:299-310

DOI: 10.1016/j.geb.2023.01.006

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