Competition in costly talk (Q6090464)

The model proposed and studied in this article describes strategic communication between two senders and one receiver. The receiver selects between two alternatives according to the reports from the senders. The senders have an incentive to misreport the actual situation when it is against their interest, though this incurs some cost: further from the exact situation, higher the cost. The analysis of the existence and properties of perfect Bayesian equilibria in the model involves several additional assumptions, which are justified throughout the article. A starting observation is that the so-called babbling equilibria (characteristic for cheap talk) do not appear in the model. Furthermore, receiver-efficient equilibria (in particular, fully revealing equilibria, characteristic for signaling games) cannot appear if the beliefs of the decision-making receiver are unprejudiced. To remedy extra biased beliefs, the author introduces the notion of adversarial equilibrium (AE). Such an equilibrium always exists, is unique in terms of outcomes, and is either robust or equivalent to another AE that is additionally robust. Also, there exist AEs with unprejudiced beliefs. The notion of AE relies on the proper understanding of swing reports, that is, reports with the intent to persuade the receiver to make a decision in favor of the sender's interest that goes against the actual situation being reported. Some extensions of the model to incorporate uncertainty of beliefs and allow senders to withdraw information are addressed at the end of the article.