Trust and Respect

About this event

This article provides a mechanism that allows for reputation in repeated cheap-talk games to enhance communication and welfare - in contrast to well-known bad-reputation results in existing literature. We relax the commitment-type assumption on bad experts and allow payoffs for unfriendly actions to depend on the expert’s current reputation. These minimal changes make possible desirable equilibria in which good and bad experts’ per-period payoffs converge to the one-shot payoff of a known good type, and in which the layperson always obtains as much information as possible. Our payoff mechanism changes the incentives that drive the results in the standard models. First, reputation in our model disciplines bad types to act more like good types, which softens the incentive for good types to differentiate themselves from bad types through “political correctness.” Second, since payoffs from unfriendly actions decrease as reputation falls, bad types no longer have an incentive to cash out their reputations and exit the market. Results for expert payoffs are more nuanced in the very long term, but communication continues to be highly effective.