Believing when Credible: Talking about Future Plans and Past Actions
Karl Schlag () and
Péter Vida ()
Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich
We explore in an equilibrium framework whether games with multiple Nash equilibria are easier to play when players can communicate. We consider two variants, modelling talk about future plans and talk about past actions. The language from which messages are chosen is endogenous, messages are allowed to be vague. We focus on equilibria where messages are believed whenever possible, thereby develop a theory of credible communication. Predictions confirm the longstanding intuition for Aumannâ€™s (1990) Stag Hunt game which applies directly to an investment game with positive spillovers. Our results shed new light on the multiplicity of equilibria in economic applications.
Keywords: Pre-Play Communication; Cheap Talk; Credibility; Coordination; Language; Multiple Equilibria. (search for similar items in EconPapers)
JEL-codes: C72 D83 (search for similar items in EconPapers)
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