Confidence and Competence in Communication

Kawamura Kohei

No 2013-43, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: This paper studies information transmission between an uninformed decision maker (receiver) and an informed player (sender) who have asymmetric beliefs ("con fidence") on the sender s ability ("competence") to observe the state of nature. We fi nd that even when the material payoffs of are perfectly aligned, the sender s over- and underconfi dence on his information give rise to information loss in communication, although they do not by themselves completely eliminate information transmission in equilibrium. However, an underconfi dent sender may prefer no communication to informative communication. We also show that when the sender is biased, overconfi dence can lead to more information transmission and welfare improvement.

Date: 2013
New Economics Papers: this item is included in nep-cta and nep-mic
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