Cheap talk
Messages that cost nothing to send, which can still carry real information when the speaker's interests run with the listener's rather than against them.
Often misread asConcluding that because a message is costless it must be ignored in equilibrium, and writing cheap talk off as empty noise.
How to see it
Words cost nothing, so they work only where interests already overlap
Cheap talk is a message that costs nothing to send and binds nobody. It can still change behaviour, but only when the speaker has no reason to mislead about the thing being said. As the parties' interests diverge, the finest message that can still be believed gets coarser, until nothing informative can be said at all.
The checkIn a pure coordination problem cheap talk is completely credible, because the speaker gains nothing from lying and everything from being understood.
Try itCompare 'I'll be at the north entrance' said to a friend you both want to find, with 'this car has never been in a crash' said by its seller. Say which can be believed in equilibrium, and make the reason be about alignment rather than about honesty.
Games that show it
Know these first
Leads on to
Easily confused with
Sources
- Crawford, V. & Sobel, J. (1982). Econometrica 50(6), 1431-1451.
- Myerson, R. (1991). Harvard University Press.