SSE/EFI Working Paper Series in Economics and Finance
When Does Communication Improve Coordination?
() 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
- 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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