Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2013

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Hyperbole, Litotes and Irony: Noisy Communication with Lying Costs

Sidartha Gordon*, Georg Nöldeke

Last modified: 2013-04-18

Abstract


We provide a class of tractable communication games where messages are noisy and lies are costly, in which costs are increasing in the magnitude of the lie. Games in this class admit Nash-Bayesian equilibria where both players use affine strategies. There can be between one and five affine equilibria, all of them partially informative. There is always at least one, but at most three straight talking equilibria, in which both players' strategies are increasing. Exactly one of the following statements holds: either (i) there is exactly one truthful or exaggerating equilibrium or (ii) there are between one and three understated equilibria. There can also be up to two ironic equilibria, where both players' strategies are decreasing. In general, the optimal level of noise is not zero and differs between the two players. The receiver may prefer to deal with a less honest sender and with a sender who is more dissimilar to him. Finally, we study the limit of the equilibria as either (i) the noise vanishes or (ii) the lying cost vanishes.

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