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Title: Partial Language Competence

Author(s): Jeanne Hagenbach and Frédéric Koessler

Publication Date: January 2019

Keyword(s): analogy-based expectations, Bayesian solution, bounded rationality, cheap talk and Language

Programme Area(s): Industrial Organization

Abstract: This paper proposes an equilibrium concept, Language-Based Expectation Equilibrium, which accounts for partial language understanding in sender-receiver cheap talk games. Each player has a privately known language competence representing all the messages that he understands. For the messages he does not understand, he has correct but coarse expectations about the equilibrium strategies of the other player. In general, a language-based expectation equilibrium outcome differs from Nash and communication equilibrium outcomes, but is always a Bayesian solution. Partial language competence of the sender rationalizes information transmission and lies in pure persuasion problems, and facilitates information transmission from a moderately biased sender.

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Bibliographic Reference

Hagenbach, J and Koessler, F. 2019. 'Partial Language Competence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13488