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

Abstract

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.