TY - JOUR
T1 - Optimal signaling with cheap talk and money burning
AU - Karamychev, Vladimir
AU - Visser, Bauke
PY - 2016/11/12
Y1 - 2016/11/12
N2 - We study Sender-optimal signaling equilibria with cheap talk and money-burning. Under general assumptions, the Sender never uses money-burning to reveal all states, but always wants to garble information for at least some states. With quadratic preferences and any log-concave density of the states, optimal communication is garbled for all states: money-burning, if used at all, is used to adjust pooling intervals. This is illustrated by studying in depth the well-known uniform-quadratic case. We also show how the presence of a cost of being “caught unprepared” that gives rise to a small change in a common assumption on the Receiver’s utility function makes full revelation through money-burning Sender-optimal.
AB - We study Sender-optimal signaling equilibria with cheap talk and money-burning. Under general assumptions, the Sender never uses money-burning to reveal all states, but always wants to garble information for at least some states. With quadratic preferences and any log-concave density of the states, optimal communication is garbled for all states: money-burning, if used at all, is used to adjust pooling intervals. This is illustrated by studying in depth the well-known uniform-quadratic case. We also show how the presence of a cost of being “caught unprepared” that gives rise to a small change in a common assumption on the Receiver’s utility function makes full revelation through money-burning Sender-optimal.
UR - http://www.tinbergen.nl/ti-publications/discussion-papers.php?paper=1839
U2 - 10.1007/s00182-016-0558-2
DO - 10.1007/s00182-016-0558-2
M3 - Article
SN - 0020-7276
VL - 46
SP - 813
EP - 850
JO - International Journal of Game Theory
JF - International Journal of Game Theory
IS - 3
ER -