Cheap Talk, Network Structures, and Coordination: An Experimental Study

Abstract

This research was designed and conducted in order to examine the role of cheap talk communication in decision making process, especially when people have to make a decision collectively. People face myriads of matters which need to be decided in their daily lives and during this process, information plays a pivotal role. Then what would be the most effective way of obtaining a piece of information? Many people try to obtain information indirectly, using information shortcut such as discussion with people with better knowledge. The impact of communication among individuals as the means of managing information, however, has not been studied widely comparing to the interest from the media and the mass. This research tries to study communication in the three-person Battle of the Sexes game. The aim is to verify the effect of communication network structures to group decision making using experimental methods based on behavioral formal model. By using experimental method, the analysis of causal inference between information and decision making, strategic choice of the player and the actual effect will be analyzed. Specifically, the study tries to find out how players make decisions under asymmetric information status. The subjects of the experiment are to play three-person Battle of the Sexes game of choosing between two options. They would get paid off when all of the three people in one group choose the same option. However, the amount of the profit following coordination is various depending on the type of the players which is given randomly by the computer when each period starts. Before making a decision between two options, participants have an opportunity to communicate with each other according to one of four communication network structures. The analysis focuses on the information management process. Which would be more significant and advantageous, to have higher level of information, or to have the power of disseminating information? In some network structures, there exist the hubs who have more connection with people from others. Depending on the structures, these hubs gain more information about the type of the others and/or have an opportunity to let others know about their own plan or type. The result shows that for group coordination, the ability to influence others is most beneficial. It is also shown that more communication brings higher coordination rate. Although the subjects were under asymmetrical payoff function, they were willing to cooperate for the group coordination. When the decision making is done at the individual level, as the previous studies has already asserted, it is important to obtain information needed at the lowest cost as possible. In this case, the people having large amount of knowledge or available shortcuts would have advantage. However, when it comes to group decision, and when my possibilities of gaining profit is also depending on others choice, the situation changes. Rather than information itself, the way information is delivered become more important. This is the point this research tried to suggest: the importance of information sharing networks to making decision.