Sequential Equilibria and Cheap Talk in Infinite Signaling Games. Part 2: Cheap Talk

Karl Iorio and Alejandro Manelli

No 1074, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: Signaling games with infinite action spaces may have no sequential equilibrium. We prove that adding cheap talk to these games solves the non-existence problem; the sequential equilibrium outcome correspondence is upper hemi-continuous. In addition, when the signaling space has sufficiently many signals, any cheap talk sequential equilibrium outcome can be appproximated by a sequential (e)-equilibrium of the game without cheap talk. In these cases, adding cheap talk does not fundamentally alter the nature of the game.

Date: 1993-03
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