Working Paper: CEPR ID: DP13488
Authors: Jeanne Hagenbach; Frdric Koessler
Abstract: This paper proposes an equilibrium concept, Language-Based Expectation Equilibrium, which accounts for partial language understanding in sender-receiver cheap talk games. Each player has a privately known language competence representing all the messages that he understands. For the messages he does not understand, he has correct but coarse expectations about the equilibrium strategies of the other player. In general, a language-based expectation equilibrium outcome differs from Nash and communication equilibrium outcomes, but is always a Bayesian solution. Partial language competence of the sender rationalizes information transmission and lies in pure persuasion problems, and facilitates information transmission from a moderately biased sender.
Keywords: analogy-based expectations; bayesian solution; bounded rationality; cheap talk; language; pure persuasion; strategic information transmission
JEL Codes: C72; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| partial language competence (G53) | sender's ability to transmit information (L96) |
| sender's ability to transmit information (L96) | communication outcomes (L96) |
| partial language competence (G53) | perception of strategies (L10) |
| perception of strategies (L10) | communication outcomes (L96) |
| partial language competence (G53) | communication efficiencies (L96) |
| LBE outcomes (I24) | Bayesian solutions (C11) |