Persuasion by Cheap Talk

Archishman Chakraborty
York University – Schulich School of Business

Rick Harbaugh
Indiana University – Kelley School of Business – Department of Business Economics & Public Policy; Indiana University – Department of Economics

July 1, 2007

Abstract:

We consider the credibility, persuasiveness, and informativeness of multi-dimensional cheap talk by an expert to a decision maker. We find that an expert with state-independent preferences can always make credible comparative statements that trade off the expert’s incentive to exaggerate on each dimension. Such communication benefits the expert — cheap talk is «persuasive» — if her preferences are quasiconvex. Communication benefits a decision maker by allowing for a more informed decision, but strategic interactions between multiple decision makers can reverse this gain. We apply these results to topics including media bias, advertising, product recommendations, voting, and auction disclosure.

Persuasion by Cheap Talk

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