Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/92832
Authors: 
Ishida, Junichiro
Shimizu, Takashi
Year of Publication: 
2009
Series/Report no.: 
ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 746
Abstract: 
This paper examines the effectiveness of cheap talk when the receiver is imperfectly informed. We show that the receiver's prior knowledge becomes an impediment to efficient communication in a model with the discrete state space: in general, the more the receiver is informed, the less information she can extract from the sender. In fact, when the receiver is as informed as the sender, no information can be conveyed via cheap talk for an arbitrarily small preference bias. This draws sharp contrast to the conventional setup where there is always a fully separating equilibrium as long as the preference bias is sufficiently small. We relate this result to issues that are critical for organizational design, such as the allocation of decision-making authority and the span of control.
Subjects: 
Cheap talk
Informed receiver
Truth telling
Rational ignorance
JEL: 
D23
D82
Document Type: 
Working Paper

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