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Indiana University Bloomington

Department of Finance

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Research and Publications

Journal Articles

Persuasion by Cheap Talk

2010, American Economic Review

Archishman Chakraborty, Rick Harbaugh

Abstract

We consider the credibility, persuasiveness, and informativeness of multidimensional cheap talk by an expert to a decision maker. We find that an expert with state-independent preferences can always make credible comparative statements that trade off the expert's incentive to exaggerate on each dimension. Such communication benefits the expert -- cheap talk is "persuasive" -- if her preferences are quasiconvex. Communication benefits a decision maker by allowing for a more informed decision, but strategic interactions between multiple decision makers can reverse this gain. We apply these results to topics including media bias, advertising, product recommendations, voting, and auction disclosure.

Citation

Chakraborty, Archishman and Rick Harbaugh (2010), "Persuasion by Cheap Talk," American Economic Review, Vol. 100, No. 5, pp. 2361-2382.

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Persuasion by Cheap Talk (458 KB)

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