Abstract

An important finding of the game theoretic research on signaling games is the insight that under many circumstances, a signal obtains credibility by incurring costs to the sender. Therefore it seems questionable whether or not cheap talk—signals that are not payoff relevant—can serve to transmit information among rational agents. This issue is non-trivial in strategic interactions where the preferences of the players are not aligned. Researchers like Crawford & Sobel, Rabin, and Farrell demonstrated, however, that even in the case of partially divergent interests, cheap talk may be informative. They assume that signals have an exogenously given meaning that is common knowledge between the players, and they explore the conditions under which such a signal is credible. This discussion has obvious relevance to the program of Gricean pragmatics in linguistics. According to Grice’s "Cooperative Principle”, this research tradition only considers scenarios where the interests of the players are aligned. Nevertheless, the assumption of differential signaling costs introduces an element of non-aligned interests. The present paper proposes a framework that combines these two research strands. Using an inference protocol of iterated best response, it gives a recipe for how the interlocutors derive rationalizable strategies from exogeneously given "literal” meanings of signals. No special assumptions about the alignment of interests or signaling costs are made. After introducing the formal model, the paper sketches several applications of this model to problems in linguistic pragmatics, like scalar implicatures, the division of pragmatic labor, and the interpretation of measure terms