York University – Schulich School of Business
Indiana University – Kelley School of Business – Department of Business Economics & Public Policy; Indiana University – Department of Economics
July 1, 2007
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.