Forming Alliances through Cheap Talk with Bounded Rational Agents
Abstract: I propose a model that is useful in the study of two themes: strategic misrepresentation of private information and formation of alliances. The game is a three-player dynamic game with incomplete information, in which coalition is impossible when all players are rational. I found multiple equilibria in which a perfectly rational sender can form a coalition with either a rational receiver ... read moreor a bounded rational receiver. Moreover, it is easier for the sender to form a coalition with a rational receiver than with a bounded rational receiver in both pooling and separating equilibria. Lastly, I prove that in separating equilibria, it is possible for a perfectly rational player to deceive her perfectly rational opponents when she has a probability of being bounded rational. It is surprising that the symmetric separating equilibria exist if and only if the listeners do not play their strictly dominant strategies in the underlying game.
Thesis (M.S.)--Tufts University, 2016.
Submitted to the Dept. of Economics.
Advisor: Enrico Spolaore.
Committee: Lynne Pepall, and Gilbert Metcalf.
Keywords: Economic theory, and Political science.read less