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Endogenous ambiguity in cheap talk

Endogenous ambiguity in cheap talk
Endogenous ambiguity in cheap talk
This paper proposes a model of ambiguous language. We consider a simple cheap talk game in which a sender who faces an ambiguity averse receiver is able to perform ambiguous randomization, i.e. to randomize according to unknown probabilities. We show that for any standard influential communication equilibrium there exists an equilibrium featuring an ambiguous communication strategy which Pareto-dominates it in terms of consistent planning ex ante utilities. Ambiguity, by triggering worst-case decision-making by the receiver, shifts the latter's response to information towards the sender's ideal action, thus encouraging more information transmission.
0022-0531
1-17
Kellner, Christian
4e2ed069-76c7-4084-a353-f56ee03e2094
Le Quement, Mark T.
db3377aa-f132-410d-bde1-bcaa8c5d1f72
Kellner, Christian
4e2ed069-76c7-4084-a353-f56ee03e2094
Le Quement, Mark T.
db3377aa-f132-410d-bde1-bcaa8c5d1f72

Kellner, Christian and Le Quement, Mark T. (2018) Endogenous ambiguity in cheap talk Journal of Economic Theory, 173, pp. 1-17. (doi:10.1016/j.jet.2017.10.007).

Record type: Article

Abstract

This paper proposes a model of ambiguous language. We consider a simple cheap talk game in which a sender who faces an ambiguity averse receiver is able to perform ambiguous randomization, i.e. to randomize according to unknown probabilities. We show that for any standard influential communication equilibrium there exists an equilibrium featuring an ambiguous communication strategy which Pareto-dominates it in terms of consistent planning ex ante utilities. Ambiguity, by triggering worst-case decision-making by the receiver, shifts the latter's response to information towards the sender's ideal action, thus encouraging more information transmission.

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Accepted/In Press date: 16 October 2017
e-pub ahead of print date: 24 October 2017
Published date: January 2018

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Local EPrints ID: 415577
URI: https://eprints.soton.ac.uk/id/eprint/415577
ISSN: 0022-0531
PURE UUID: 9c96a6db-f739-41ef-bc96-4fba5a5fa946

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Date deposited: 15 Nov 2017 17:30
Last modified: 10 Feb 2018 17:30

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Author: Mark T. Le Quement

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