Section 4

The slides for section 4 on cheap talk can be found here.

Key points:

* There is no guarantee that you will wind up in a Nash equilibrium.
* Cheap talk and other forms of signaling can help solve coordination problems and facilitate arrival at an equilibrium.
* When theory predicts multiple equilibria, laboratory evidence can be a useful way to gain intuition about what kind of equilibria are more robust in action.
* The papers we looked at showed some evidence that equilibria which are cognitively simpler - pure strategies as opposed to mixed, or strategies which aren't too dependent on future punishment or precise communication - may be more common in practice.
* Furthermore, the papers we looked at provided evidence that the details of the message space are important and have impact on the equilibrium outcome.
* The dynamics of how an equilibrium is reached is studied by evolutionary game theorists.  If you are interested in learning more, here is an article called "Do people play Nash equilibrium? Lessons from evolutionary game theory" by George J. Mailath.

http://www.jstor.org/discover/10.2307/2564802?uid=3739560&uid=2129&uid=2&uid=70&uid=4&uid=3739256&sid=47698855016007