Even Cheaper Talk

I’m quite intrigued by cheap talk, probably because it constitutes about 90 per cent of my conversations. Cheap talk models would probably be better understood if course instructors use more frequently occurring examples from the students’ lives. Consider the example of asking an instructor what the syllabus for an exam is. He has (or will) set the paper himself and he knows whether or not a student should read a certain paper with a probability of 100 percent. However, there are conflicting interests at work. The instructor wants the student to read and learn as much as possible and uses the exam as an incentive mechanism to achieve his end. He may also want to ask a student to read all the papers in a reading list because he wants to keep his options open (in the event that he is yet to draft the question paper). So when a student asks an instructor whether a paper that was not covered in class but was referred to in some lecture or is available in the reading list is important for the exam, the standard answer is, “You can read through it”: the babbling equilibrium. Just as the theory predicts, this isn’t reason enough for many students to understand that there’s no point in playing the game at all.

Economics students would probably be a lot smarter if they weren't so rational.