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Efficiency, communication and honesty

Stefano Demichelis () and Jörgen Weibull
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Stefano Demichelis: Università degli studi di Pavia, Postal: Dipartimento di matematica F. Casorati, Via Ferrata, 1, 27100 Pavia - Italy

No 645, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: We here develop a model of pre-play communication that generalizes the cheap-talk approach by allowing players to have a lexicographic preference, second to the payoffs in the underlying game, for honesty. We formalize this by way of an honesty (or truth) correspondence between actions and statements, and postulate two axioms met by natural languages. The model is applied to finite and symmetric two-player games and we establish that honest communication and play of the Pareto dominant Nash equilibrium together characterize the unique evolutionarily stable set in generic and symmetric n×n-coordination games. In particular, this holds even in Aumann's (1990) example of a Pareto dominant equilibrium that is not self-enforcing.

Keywords: efficiency; communication; coordination; honesty; evolutionary stability (search for similar items in EconPapers)
JEL-codes: C72 C73 D01 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2006-02-01, Revised 2006-11-28
New Economics Papers: this item is included in nep-cbe, nep-evo and nep-gth
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Forthcoming in American Economic Review.

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