Cheap talk with two-sided private information

Inés Moreno de Barreda

Games and Economic Behavior, 2024, vol. 148, issue C, 97-118

Abstract: This paper studies how the transmission of information from a biased expert to a decision maker is affected when the latter has access to an unbiased symmetric private signal. The extra information has two distinct effects on the expert's incentives to communicate. First, there is an information effect that allows the decision maker to choose a better action on expectation. This reduces the implicit cost of transmitting coarse messages and hence hampers communication. Second, there is a risk effect that arises because the extra information introduces uncertainty to the expert. For risk averse experts, this effect increases the cost of sending coarse messages and hence favours communication. I show that the information effect dominates the risk effect, and for any symmetric signal structure there are always sufficiently biased experts for which communication is no longer possible in equilibrium. Moreover, for any bias of the expert, no communication is possible if the signal structure is sufficiently precise. For the uniform signal structure I show that communication decreases with the precision of the signal. Finally, I provide non degenerate examples for which the decision maker's private information cannot make up for the loss of communication implying that the welfare of both agents decreases.

Keywords: Communication; Two-sided private information; Cheap talk; Information acquisition (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0899825624001337
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:148:y:2024:i:c:p:97-118

DOI: 10.1016/j.geb.2024.09.001

Access Statistics for this article

Games and Economic Behavior is currently edited by E. Kalai

More articles in Games and Economic Behavior from Elsevier
Bibliographic data for series maintained by Catherine Liu ().