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Costly and discrete communication: An experimental investigation

Duffy, Sean and Hartwig, Tyson and Smith, John (2011): Costly and discrete communication: An experimental investigation.

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Abstract

Language is an imperfect and coarse means of communicating information about a complex and nuanced world. We run an experimental investigation of a setting in which the messages available to the sender imperfectly describe the state of the world, however the sender can improve communication, at a cost, by increasing the complexity or elaborateness of the message. As is standard in the communication literature, the sender learns the state of the world then sends a message to the receiver. The receiver observes the message and provides a best guess about the state. The incentives of the players are aligned in the sense that both sender and receiver are paid an amount which is increasing in the accuracy of the receiver's guess. We find that the size of the language endogenously arises as a function of the costs of communication. Specifically, we find that higher communication costs are associated a smaller language. Although the equilibrium predictions do not perform well, this divergence occurs in a manner which is consistent with the experimental communication literature: overcommunication. For the receiver, there is a positive relationship between the payoffs relative to the equilibrium predictions and communication costs. This relationship is negative for the senders. We also find that the response times of both the senders and receivers are negatively, not positively, related to their payoffs.

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