Scandinavian Working Papers in Economics
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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 680:
When Does Communication Improve Coordination?

Tore Ellingsen () and Robert Östling ()

Abstract: We study costless pre-play communication of intentions among inexperienced players. Using the level-k model of strategic thinking to describe players' beliefs, we fully characterize the effects of pre-play communication in symmetric 2×2 games. One-way communication weakly increases coordination on Nash equilibrium outcomes, although average payoffs sometimes decrease. Two-way communication further improves payoffs in some games, but is detrimental in others. Moving beyond the class of symmetric 2×2 games, we find that communication facilitates coordination in common interest games with positive spillovers and strategic complementarities, but there are also games in which any type of communication hampers coordination.

Keywords: Pre-play communication; cheap talk; coordination; level-k; cognitive hierarchy; (follow links to similar papers)

JEL-Codes: C72; (follow links to similar papers)

30 pages, November 27, 2007, Revised October 13, 2009

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This paper is published as:
Ellingsen, Tore and Robert Östling, (2010), 'When Does Communication Improve Coordination?', American Economic Review, Vol. 100, September, No. 4, pages 1695-1724

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