When Does Communication Improve Coordination?

Tore Ellingsen and Robert Östling

No 680, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

Abstract: We study costless pre-play communication of intentions among inexperienced players. Using the level-k model of strategic thinking to describe players' beliefs, we fully characterize the effects of pre-play communication in symmetric 2×2 games. One-way communication weakly increases coordination on Nash equilibrium outcomes, although average payoffs sometimes decrease. Two-way communication further improves payoffs in some games, but is detrimental in others. Moving beyond the class of symmetric 2×2 games, we find that communication facilitates coordination in common interest games with positive spillovers and strategic complementarities, but there are also games in which any type of communication hampers coordination.

Keywords: Pre-play communication; cheap talk; coordination; level-k; cognitive hierarchy (search for similar items in EconPapers)
JEL-codes: C72 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2007-11-27, Revised 2009-10-13
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp and nep-gth
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Published in American Economic Review, 2010, pages 1695-1724.

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0680

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