Divergent Interpretation and Divergent Prediction in Communication

Shintaro Miura and Takuro Yamashita

No 18-939, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We consider a cheap-talk game à la Crawford and Sobel (1982) with almost-common interest players. The sender's bias parameter is only approximately common knowledge. Compared to the standard case where the structure of the bias parameter is (exactly) common knowledge, communication between the players is subject to divergent interpretation of the sender's messages by the receiver, and divergent prediction of the receiver's reaction by the sender. We show that the complementary nature of these phenomena can result in significant welfare consequences even with a \small" (in a certain sense) departure from (exact) common knowledge.

Date: 2018-07
New Economics Papers: this item is included in nep-mic
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