Probabilistic cheap talk

Bhaskar Chakravorti, Bart Taub () and John Conley
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Bhaskar Chakravorti: The Monitor Company, 25 First St., Cambridge MA 02141, USA
Bart Taub: Department of Economics University of Illinois, 330 Commerce West Building, Champaign, IL 61820, USA

Social Choice and Welfare, 2002, vol. 19, issue 2, 294 pages

Abstract: We consider a model in which there is uncertainty over when a one-shot game will be played. We show how a mechanism designer can implement desirable outcomes in certain economic games by manipulating only the probability that the game is played in a given round while leaving all other aspects of the game unchanged. We also show that if there is no discounting, this uncertainty imparts a sequential structure that is almost mathematically equivalent to a repeated version of the game with discounting. In particular, a folk theorem applies to such games. Thus, games of probabilistic cheap provide a third interpretation of the repeated game framework with the additional feature that expected payoff is invariant to the probability of the game ending.

Date: 2002-04-10
Note: Received: 10 May 1999/Accepted: 16 October 2000
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