Reputational cheap talk versus prior information

2025-05-17

AI Summary

This paper investigates information transmission in cheap-talk communication driven by sender reputation: senders may distort signals to appear informed, while receivers must optimally balance prior information and sender signals to infer a hidden state. Using a game-theoretic model embedded in a Bayesian decision framework, we fully characterize the receiver’s optimal weighting mechanism across all informative equilibria. Our key result is a phase-transition phenomenon: when prior precision is moderate—neither too noisy nor too accurate—the receiver completely ignores the sender’s signal and relies solely on the prior. This “signal screening” behavior paradoxically mitigates reputation-induced communication failure and improves state-matching efficiency. We thus identify a novel complementarity between moderate-prior quality and high-fidelity communication—a finding that offers fresh insights for information design and reputation mechanism research.

Technology Category

• Game Theory and Economic Paradigms: Imperfect Information
• Multiagent Systems: Mechanism Design
• Reasoning under Uncertainty: Decision/Utility Theory

Application Category

• User Modeling, Personalization and Recommendation: Psychology-informed user models and recommender systems
• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Web Mining and Content Analysis: Content-based information diffusion

Abstract

I study a setting where a sender communicates her information about a hidden state with a receiver who wants to match his action with that state. The sender strives to appear informed at the receiver's expense. I characterize the receiver's tradeoff between relying on the sender or on prior information about the state when picking his action in all informative equilibria. I show that the receiver relies only on prior information, irrespective of how informed the sender may be, if and only if prior information is neither sufficiently noisy nor sufficiently informative. My results highlight a complementarity that informative prior information facilitates high-quality communication under reputation concern.

Problem

• Study sender-receiver communication with hidden state
• Analyze receiver's reliance on sender vs prior information
• Identify conditions for prior-only reliance in equilibria

Innovation

• Sender communicates hidden state information
• Receiver balances sender and prior information
• Prior information quality affects communication effectiveness