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Theory and Decision

, Volume 76, Issue 3, pp 395–417 | Cite as

Costly and discrete communication: an experimental investigation

  • Sean Duffy
  • Tyson Hartwig
  • John SmithEmail author
Article

Abstract

Language is an imperfect and coarse means of communicating information about a complex and nuanced world. We report on an experiment designed to capture this feature of communication. The messages available to the sender imperfectly describe the state of the world; however, the sender can improve communication, at a cost, by increasing the complexity or elaborateness of the message. Here the sender learns the state of the world, then sends a message to the receiver. The receiver observes the message and provides a best guess about the state. The incentives of the players are aligned in the sense that both sender and receiver are paid an amount which is increasing in the accuracy of the receiver’s guess. We find that the size of the language endogenously emerges as a function of the costs of communication. Specifically, we find that higher communication costs are associated with a smaller language. Although the equilibrium predictions do not perform well, this divergence occurs in a manner which is consistent with the experimental communication literature: overcommunication. We find that the sender’s payoffs, relative to equilibrium payoffs, are decreasing in the cost of communication. We also find that the receiver’s payoffs, relative to equilibrium payoffs, are increasing in the cost of communication. Finally, we find imperfections in coordination on the basis of the experimental labels.

Keywords

Information transmission Cheap talk Overcommunication  Bounded rationality Experimental game theory 

JEL codes

C72 C91 D82 

Notes

Acknowledgments

The authors thank two anonymous reviewers, an associate editor, Noha Emara, Joel Sobel, Jack Worrall, and participants at the Economic Science Association Conference in Copenhagen, the 21st Stony Brook Game Theory Festival, and seminar participants at the University of Pittsburgh and Rutgers University for helpful comments. This research was supported by Rutgers University Research Council Grants #202084 and #202171.

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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of PsychologyRutgers University-CamdenCamdenUSA
  2. 2.Department of EconomicsRutgers University-CamdenCamdenUSA

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