Applied Microeconomics Seminar Series - Emir Kamenica (University of Chicago Booth School of Business)

Title: Commitment and Randomization in Communication (Emir Kamenica and Xiao Lin)

Abstract: When does Sender, in a Sender-Receiver game, strictly value commitment? In a setting with finitely many actions and states, we establish that, generically, commitment has no value if and only if a partitional experiment is optimal. Moreover, if Sender’s preferred cheap-talk equilibrium necessarily involves randomization, then Sender values commitment. Our results imply that if a school values commitment to a grading policy, then the school necessarily prefers to grade unfairly. We also ask: for what share of preferences does commitment have no value? For any state space, if there are |A|actions, the share is at least 1 |A||A|. As the number of states grows large, the share converges precisely to 1|A||A|.