Words, Deeds and Lies: Strategic Behavior in Games withMultiple SignalsJohn DuffyDepartment of EconomicsUniversity of PittsburghPittsburgh, PA 15260, USAjduff[email protected] Feltovich∗Department of EconomicsUniversity of HoustonHouston, TX 77204–5019, [email protected] 25, 2005AbstractWe report the results of an experiment in which subjects play games repeatedly against changing opponents.In one treatment, “senders” send messages to “receivers” indicating intended actions in that round, and receiversobserve senders’ previous–round actions (when matched with another receiver). In another treatment, thereceiver additionally observes the sender’s previous–round message to the previous opponent, enabling him todetermine whether the sender lied in the previous round. We find that allowing more than one signal leads tobetter outcomes when signals are aligned (all pointing to the same action), but worse outcomes when signals arecrossed. We also find that senders’ signals tend to be truthful, though the degree of truthfulness depends on thegame and treatment, and receivers’ behavior combines elements of payoff maximization and reciprocity.Journal of Economic Literature classifications: D83, C72, C73.Keywords: observation, cheap talk, truthfulness, deception.∗Corresponding author. Funding for this project was provided by the National Science Foundation under grants SBR–9809622 andSBR–9813622. We thank Chris Anderson, Juergen Bracht, Nad`ege Marchand, participants at several conferences and seminars, andtwo anonymous referees for helpful comments and suggestions. Any remaining errors could have been observed in our previous paper.1 IntroductionMany situations can be modeled as one–shot games in which players’ interests are at least partially aligned. Peoplein these situations often manage to coordinate successfully on one equilibrium when several exist. They may evenobtain higher payoffs than in any equilibrium (for example, by overcontributing relative to equilibrium in publicgood situations). How do they achieve such good outcomes? One promising theory is that they use availableinformation to determine the actions others are likely to choose.1This information can take many forms. Playersmay be able to communicate their intentions with costless nonbinding “cheap talk”. Alternatively, they might useobservations of their opponents’ past behavior to infer their likely future behavior.This paper is an examination of these two types of information—cheap talk and observation. We design and runan experiment in which subjects play games against changing opponents under two information treatments. In ourfirst, “words and deeds” (WD), treatment, each “sender” sends a cheap–talk message to her opponent, indicatingthe action the sender intends to play. The “receiver” also observes the sender’s previous–round action choice(when matched with someone else). The receiver can use the sender’s previous behavior to make inferences aboutthe likely truthfulness of the sender’s message, and from that, the action the sender might choose in the currentround. In our second, “words, deeds, and lies” (WDL) treatment, receivers see the message and previous–roundaction, plus a third piece of information: the sender’s previous–round message to her then–opponent. Observationof the previous round in this treatment therefore consists of two different pieces of information: what action thesender actually chose, and whether the sender had lied about her intentions to the previous receiver. The receivercan use the truthfulness (or lack thereof) of the sender’s previous message to evaluate her current message.Our examination consists of two distinct, though related, issues. In both cases, we build upon previouswork (Duffy and Feltovich (2002)) which used the same games, but with three different information treatments:cheap talk only, observation of previous–round actions only, and a control treatment with neither cheap talknor observation. One issue we examine is how the availability of multiple signals affects the outcomes subjectsachieve.2There are two (not mutually exclusive) possibilities. Giving subjects additional information might enablethem to make better decisions, so that good outcomes are more likely. (This is part of the motivation behindour WDL treatment.) On the other hand, allowing multiple signals opens up the possibility that they might be“crossed”—for example, a current–round message different from the previous–round action. When signals arecrossed, the receiver may have no better idea of the sender’s likely action than if he had been given no informationat all, so the resulting outcome may actually be worse than if only one piece of information had been available.3The vast majority of theoretical and experimental treatments of signaling has examined situations with only onesignal available. Some theorists have looked at multiple signals, but there has been almost no experimental workdesigned to see how people actually behave in these situations. (Exceptions are discussed in Section 3.)1Another possibility is that some outcome serves as a “focal point” for players; each player perceives that the other player willchoose that outcome and so they choose it as well. See Sugden (1995) for a first effort in this direction. We consider this theory to becomplementary, since the question then becomes one of how players recognize the existence of a focal point; such recognition may beeasier if additional information is available for players to use.2For ease of exposition, we use the term “signal” to encompass both messages and observed actions, and more generally, any pieceof information sent to another player, intentionally or not, as long as both sender and receiver know that it is sent and received. Wenote here that all signals in our experiment are costless and nonbinding.3As an old expression goes, the man with one watch always knows what time it is, while the man with two watches never does.1The other issue we examine deals with the question: “do actions speak louder than words?” Our earlier paperaddressed this question indirectly, by comparing subject behavior in the cheap–talk treatment with that in theobservation treatment. We found that the answer varied with the game, specifically on whether it gave sendersincentives to be truthful with their cheap talk. When the game’s
View Full Document
Unlocking...