Cheap talk in complex environments

Yunus C. Aybas () and Steven Callander ()
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Yunus C. Aybas: Texas A&M University, Department of Economics
Steven Callander: Stanford University, Stanford Graduate School of Business

Theoretical Economics, Forthcoming

Abstract: We study cheap talk in environments in which the mapping from actions to outcomes is the realized path of an Itô diffusion. The sender observes the realized mapping, while the receiver knows only the family from which it is drawn. This environment relaxes two assumptions embedded in canonical cheap talk: that the action–outcome mapping is perfectly invertible and that, in every state, the sender’s and receiver’s ideal outcomes are attainable for some actions. We show that these assumptions are substantive. When they are relaxed, an efficient sender-optimal equilibrium can exist: the sender recommends one of her most preferred actions and the receiver chooses it. We show that whenever the sender and receiver share some common interest, sender optimal equilibrium exists on sufficiently narrow action spaces.

Keywords: Cheap talk; Brownian motion; expert power (search for similar items in EconPapers)
JEL-codes: D83 (search for similar items in EconPapers)
Date: 2026-10-29
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