de Groot Ruiz, Adrian Offerman, Theo Onderstal, Sander
Year of Publication:
Tinbergen Institute Discussion Paper No. 11-055/1
We provide a game theoretic analysis of how power shapes the clarity of communication. We analyze information transmission in a cheap talk bargaining game between an informed Sender and an uninformed Receiver. Theoretically, we find that the maximum amount of information that can be transmitted in equilibrium is increasing in the bargaining power of the Sender relative to that of the Receiver. Using the ACDC-selection criterion, which selects a unique most-informative equilibrium, we predict that information transmission is increasing in the Sender's relative bargaining power. This prediction is corroborated by an experiment. Finally, we show how partial information transmission can lead to communication failure, and show how and under which conditions a delegation mechanism can solve this problem.
Cheap Talk Bargaining Power Information Transmission Experiment