Toxic Types and Infectious Communication Breakdown

• Authors: Alexander Frug.
• BSE Working Paper: 110697 | December 20
• Keywords: Contagion , cheap talk
• JEL codes: D83
• Contagion
• cheap talk

We introduce a new channel for breakdown of cheap talk communication between an informed sender and an uninformed receiver. Our framework has the following novel feature: conditional on interacting, both parties agree on the optimal action in each state, but there are sender types with which the receiver prefers not to interact. We show that for a broad class of preferences, any interval equilibrium induces only finitely many actions in the support of the receiver’s strategy. We also show that introducing a second stage with noisy signals on the sender type has a dramatic effect on the first-stage communication.