Overcommunication in strategic information transmission games

Abstract

In this paper we conduct laboratory experiments to test the Crawford and Sobel [Crawford, V., Sobel, J., 1982. Strategic information transmission. Econometrica 50, 1431-1451] theory of strategic information transmission. Our experimental results strongly support the basic insight of the theory, namely, that less information is transmitted when preferences of the sender and the receiver diverge. Moreover, the average payoffs for the senders, the receivers, and the overall subject population are very close to those predicted by the most informative equilibrium. However, the evidence shows that subjects consistently overcommunicate in that the senders' messages are more informative about the true states of the world and that the receivers rely more on the senders' messages in choosing actions, compared with what the theory allows in the most informative equilibrium. To understand the overcommunication phenomenon, we use two popular approaches of bounded rationality: behavior type analysis and quantal response equilibrium, to analyze subjects' behavior in our experiment data. © 2005 Elsevier Inc. All rights reserved.