Cheap Talk - Application

Application

Cheap talk can, in general, be added to any game and has the potential to enhance the set of possible equilibrium payoffs. For example, one can add a round of cheap talk in the beginning of the Battle of the Sexes. Each player announces whether they intend to go to the football game, or the opera. Because the Battle of the Sexes is a coordination game, this initial round of communication may enable the players to select among multiple equilibria, thereby achieving higher payoffs than in the uncoordinated case. The messages and strategies which yield this outcome are symmetric for each player. They are: 1) announce opera or football with even probability 2) if a person announces opera (or football), then upon hearing this message the other person will say opera (or football) as well (Farrell and Rabin, 1996). If they both announce different options, then no coordination is achieved. In the case of only one player messaging, this could also give that player a first-mover advantage.

It is not guaranteed, however, that cheap talk will have an effect on equilibrium payoffs. Another game, the Prisoner's Dilemma, is a game whose only equilibrium is in dominant strategies. Any pre-play cheap talk will be ignored and players will play their dominant strategies (Defect,Defect) regardless of the messages sent.