Munich Personal RePEc Archive

Sweet Talk: A Theory of Persuasion

Di Maggio, Marco (2009): Sweet Talk: A Theory of Persuasion.

[img]
Preview
PDF
MPRA_paper_18697.pdf

Download (260kB) | Preview

Abstract

This paper introduces a model of sweet talk in which a seller may acquire verifiable information and selectively disclose it to a buyer to negotiate a deal. We start by analyzing a model with common priors in which the seller generates information for two reasons: a trading motive and a profit motive that is, to make trade possible or to increase the gains from it. There exists a negotiation region in which the seller continues to reveal information even if trading is already profitable. We extend the model, allowing for different prior beliefs about the value of the object, arguing that a complementarity between the seller's confidence and the precision of his information endogenously arises. Appointing an optimistic salesman may be costly because he may destroy profitable trading opportunities. We also allow the seller to choose in which market to trade: a matching market with a fixed price or a haggling market. Our model also provides a testable difference between a model of trading with homogenous priors and one with heterogeneous priors and finds application in understanding contracts as reference points.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.