SSE/EFI Working Paper Series in Economics and Finance
No 645:
Efficiency, communication and honesty
Stefano Demichelis ()
and Jörgen Weibull ()
Abstract: We here develop a model of pre-play communication that
generalizes the cheap-talk approach by allowing players to have a
lexicographic preference, second to the payoffs in the underlying game, for
honesty. We formalize this by way of an honesty (or truth) correspondence
between actions and statements, and postulate two axioms met by natural
languages. The model is applied to finite and symmetric two-player games
and we establish that honest communication and play of the Pareto dominant
Nash equilibrium together characterize the unique evolutionarily stable set
in generic and symmetric n×n-coordination games. In particular, this holds
even in Aumann's (1990) example of a Pareto dominant equilibrium that is
not self-enforcing.
Keywords: efficiency; communication; coordination; honesty; evolutionary stability; (follow links to similar papers)
JEL-Codes: C72; C73; D01; (follow links to similar papers)
22 pages, February 1, 2006, Revised November 28, 2006
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- This paper is forthcoming as:
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Demichelis, Stefano and Jörgen Weibull, 'Language, meaning and games - A model of communication, coordination and evolution', American Economic Review.
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