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Cheap talk in the game of chicken : an experimental investigation : a thesis presented in partial fulfilment of requirements for the degree of Masters in Business Studies in Economics at Massey University, Albany, New Zealand
Following the suggestion that cheap talk can help players to coordinate on Nash
equilibria in Chicken, an experimental test was undertaken to test this claim. In
pairs, participants (n=180) played an endowment version of Chicken involving either
no communication, one-way communication, or two-way communication. Participants
were each given a sum of money which they could either Invest or Not Invest. Based
on both participants' decisions, the initial amount of money could be increased or decreased.
Although cheap talk did not significantly increase the proportion of equilibria
outcomes, one-way and two-way cheap talk influenced
participants' behaviour in opposing
ways. In the one-way condition, senders used their messages to take charge of
the game while two-way communication elicited greater cooperativeness between participants.
These findings support the idea that two messages can create a focal point
even when they do not constitute a Nash equilibrium. Explanations for these findings,
the applicability of level-k model predictions, and also practical applications of this
research are discussed.