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Equilibrium Refinement vs. Level-k Analysis: An Experimental Study of Cheap-talk Games with Private Information

Toshiji Kawagoe and Hirokazu Takizawa
Mon, 2008-03-10

We present the experimental results of cheap-talk games with private information. We systematically compare various equilibrium refinement theories and bounded rationality models such as level-k analysis in explaining our experimental data. As in the previous literature, we find that when interests between sender and receiver are aligned, informative communication arises frequently. While babbling equilibrium play is observed more frequently in conflictive interest cases, a substantial number of players show a tendency to choose truth-telling and credulous play. We also find that level-k analysis outperforms equilibrium refinement theories in explaining this phenomenon. Our results also confirm the existence of the “truth bias” and “truth-detection bias” reported in communication theory.

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