The Korean Journal of Economic Studies
A Theory of Credibility in a Repeated Communication Game
Jihye Kim(Sungkyunkwan University), Yong-Gwan Kim(Sungkyunkwan University), Minseong Kim(Sungkyunkwan University)
AbstractThis paper provides an analysis of credibility in a repeated cheap talk game with noisy signals where information transmission may be affected by the concern for reputation about the type of the informed player. A good type who shares the same preferences with an uninformed player wants to tell the truth for current payoffs, whereas a bad type who has different preferences from the uninformed player has an incentive to lie for current payoffs. The uninformed player faces an uncertainty about the informed player’s type and a certain message can be a signal that the informed player is a bad type, which can give rise to an incentive to lie for future reputation on the part of the good type. The analysis also shows that, if the two types’ preferences are similar enough, neither type has a strong incentive to tell a lie and the information transmission is perfect. However, if the two types’ preferences are significantly different, the information transmission is not perfect. Interestingly, under some parameter specifications, the good type lies for the future, whereas the bad type always tells the truth.