Demanding or Deferring? The Economic Value of Communication with Attitude

Economics

Speaker:Daniel Houser, George Mason University
Date: Monday 23 February 2015
Time: 12.00 - 13.30
Location: Streatham Court 0.28

Further details

This paper builds a bridge between theory (Farrell 1993, Rabin 1994) and experiment (Ledyard 1995; Charness and Dufwenberg 2006, 2010) to explain why rich, multi-meaning language may allow coordination to occur more easily than restrictive language. We generalize the analysis of free-form pre-play communication in coordination games by introducing a model where language has two-dimensional meaning: E-meaning (the requested equilibrium) as well as A-meaning (the request’s “attitude”). Our model predicts that simultaneous pre-play messaging will improve coordination because people both use and respond to messages’ requested equilibrium and attitude. We test our model using controlled experiments in both Washington D.C. and Shanghai. Consistent with our model, we find (i) natural language cheap-talk does include both equilibrium requests and attitude; (ii) people respond to both the requested equilibrium and attitude when making action decisions; and (iii) the use of attitude improves coordination. Indeed, we show that effective use of multiple meaning messages allows people to achieve a "negotiated equilibrium" (Rabin, 1994) using one-shot simultaneous messages. Moreover, while males and females recognize and respond to equilibrium requests and attitude equally well, we find females are more likely to send more demanding requests than males, while males generally focus more on the equilibrium outcome than the attitude. Our research helps to explain why free-form communication more than restricted signaling facilitates coordination, and also sheds light on effective approaches to the design of communication systems that promote efficient economic outcomes.