Believing when Credible: Talking about Future Plans and Past Actions

Schlag, Karl H. and Vida, Péter (17. September 2015): Believing when Credible: Talking about Future Plans and Past Actions. SFB/TR 15 Discussion Paper No. 517

Abstract

We explore in an equilibrium framework whether games with multiple Nash equilibria are easier to play when players can communicate. We consider two variants, modelling talk about future plans and talk about past actions. The language from which messages are chosen is endogenous, messages are allowed to be vague. We focus on equilibria where messages are believed whenever possible, thereby develop a theory of credible communication. Predictions confirm the longstanding intuition for Aumann’s (1990) Stag Hunt game which applies directly to an investment game with positive spillovers. Our results shed new light on the multiplicity of equilibria in economic applications.

• Item Type: Paper
• Keywords: Pre-Play Communication, Cheap Talk, Credibility, Coordination, Language, Multiple Equilibria.
• Faculties: Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems; Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > A1 - Allokationsmechanismen in Organisationen und Märkten
• Subjects: 300 Social sciences > 330 Economics
• JEL Classification: C72, D83
• Language: English