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Does cheap talk promote coordination under asymmetric information? An experimental study on global games

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  • Duan, Jieyi
  • Kobayashi, Hajime
  • Shichijo, Tatsuhiro
Abstract
This study experimentally investigates the role of two-sided cheap talk in decisions under asymmetric information. Unlike previous studies, we also consider endogenous investment timing. In the experiment, subjects play two-player global games with asymmetric information. Before making any decision, a subject sends the other player a free message that takes the form of continuous numerical value. The results show that both the cheap talk and the endogenous investment timing improve the efficiency of investments significantly, but the effect of the former is weaker than that of the latter. Moreover, data shows that when subjects’ decision timing is endogenous, additional information from the cheap talk cannot further improve investment efficiency. Finally, the data report a high proportion of subjects sending truth-telling messages, which is close to the value of the private signal. However, some subjects send exaggerated messages that are higher than their private signals, and the proportion of these subjects increases with time.

Suggested Citation

  • Duan, Jieyi & Kobayashi, Hajime & Shichijo, Tatsuhiro, 2020. "Does cheap talk promote coordination under asymmetric information? An experimental study on global games," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 86(C).
    • Handle: RePEc:eee:soceco:v:86:y:2020:i:c:s2214804319301557
    DOI: 10.1016/j.socec.2020.101519
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    More about this item

    Keywords

    Global games; Cheap talk; Endogenous timing; Welfare analysis;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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