Cheap talk

In game theory, cheap talk is communication between players that does not directly affect the payoffs of the game. Providing and receiving information is free. This is in contrast to signaling in which sending certain messages may be costly for the sender depending on the state of the world.→ Quadratic utilities:UR is maximized when a = t, meaning that the receiver wants to take action that matches the state of the world, which he does not know in general. US is maximized when a = t + b, meaning that S wants a slightly higher action to be taken. Since S does not control action, S must obtain the desired action by choosing what information to reveal. Each player’s utility depends on the state of the world and on both players’ decisions that eventually lead to action a.More generally :→ Quadratic utilities:→ Practically:N = 1: This is the babbling equilibrium. t0 = 0, t1 = 1; a1 = 1/2 = 0.5.N = 2: t0 = 0, t1 = 2/5 = 0.4, t2 = 1; a1 = 1/5 = 0.2, a2 = 7/10 = 0.7. N = N* = 3: t0 = 0, t1 = 2/15, t2 = 7/15, t3 = 1; a1 = 1/15, a2 = 3/10 = 0.3, a3 = 11/15.With N = 1, we get the coarsest possible message, which does not give any information. So everything is red on the top left panel. With N = 3, the message is finer. However, it remains quite coarse compared to full revelation, which would be the 45° line, but which is not a Nash equilibrium.With a higher N, and a finer message, the blue area is more important. This implies higher utility. Disclosing more information benefits both parties. In game theory, cheap talk is communication between players that does not directly affect the payoffs of the game. Providing and receiving information is free. This is in contrast to signaling in which sending certain messages may be costly for the sender depending on the state of the world.