Cheap Talk in Games with Incomplete Information
The paper studies Bayesian games which are extended by adding pre-play communication. Let G be a Bayesian game with full support and with three or more players. The main result is that if players can send private messages to each other and make public announcements then every communication equilibrium outcome, q, that is rational (i.e., involves probabilities that are rational numbers) can be implemented in a sequential equilibrium of a cheap talk extension of G, provided that the following condition is satisfied: There exists a Bayesian Nash equilibrium s in G such that for each type ti of each player i the expected payoff of ti in q is larger than the expected payoff of ti in s.
Journal of Economic Literature classification number: C7.
Key words: communication, Bayesian games, sequential equilibrium.