Optimal Information Design in Sender-Receiver Cheap Talk Interactions

Abstract

This paper considers the dynamics of cheap talk interactions between an oblivious receiver and a sender with different amounts of information. Even though it may seem that having additional information about the state of the game is always beneficial to the sender, we show that there are cases in which garbling the information of a fully informed sender can improve not only receiver’s utility in equilibrium, but also that of the sender herself. We also provide efficient algorithms that output the optimal amount of information in sender-receiver scenarios with binary actions and extend some of these results to settings with multiple senders and one receiver.