Conferences at Department of Economics, University of Toronto, Canadian Economic Theory Conference 2025

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Renegotiation-Proof Cheap Talk

Steven Kivinen*, Christoph Kuzmics

Building: HEC Montréal - Édifice Hélène-Desmarais
Room: HEC
Date: 2025-05-03 11:00 am – 11:30 am
Last modified: 2025-04-19

Abstract


<p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">An informed Advisor and an uninformed Decision-Maker engage in repeated</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">cheap talk communication in always new (stochastically independent) decision</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">problems. They have a conflict of interest over which action should be implemented</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">at least in some cases. Our main result is that, while the Decision-</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">Maker’s optimal payoff is attainable in some subgame perfect equilibrium (by</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">force of the usual folk theorem), no payoff profile close to the Decision-Maker’s</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">optimal one is immune to renegotiation. Pareto efficient renegotiation-proof</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">equilibria are typically attainable, and they entail a compromise between the</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">Advisor and the Decision-Maker. This could take the form of the Advisor being</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">truthful and the Decision-Maker not utilizing this information to their own</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">full advantage, or the Advisor being somewhat liberal with the truth and the</p><p class="p1" style="margin: 0px; font-variant-numeric: normal; font-variant-east-asian: normal; font-variant-alternates: normal; font-size-adjust: none; font-kerning: auto; font-optical-sizing: auto; font-feature-settings: normal; font-variation-settings: normal; font-variant-position: normal; font-stretch: normal; font-size: 11px; line-height: normal; font-family: Helvetica;">Decision-Maker, while fully aware of this, pretending to believe the Advisor.</p>

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