A two-person game of information transmission

We consider a statistical decision problem faced by a two player organization whose members may not agree on outcome evaluations and prior probabilities. One player is specialized in gathering information and transmitting it to the other, who takes the decision. This process is modeled as a game. Qualitative properties of the equilibria are analyzed. The impact of improving the quality of available information on the equilibrium welfares of the two individuals is studied. Better information generally may not improve welfare. We give conditions under which it will. ∗This paper was originally circulated in 1980 and 1981. We hope that its publication at this time will make it more available than it has been, and we thank Vince Crawford for suggesting this to us. In the more than 20 years since it was written the literature on games of information transmission and “cheap talk” games in particular has expanded rapidly. Principal applications have been in the field of industrial organization, and in game theory more generally. See Farrell and Rabin (1996) for a good survey. †Department of Economics, Harvard University, Littauer Center, Cambridge, MA, 02138, and Department of Economics, University of Chicago, 1126 East 59th Street, Chicago, IL 60637. This work was supported by NSF grant No. APR77-06999 to Harvard University.