The Power of Words: Why Communication fosters Cooperation and Efficiency

We present a game-theoretical model that accounts for abundant experimental evidence from games with non-binding communication (‘cheap talk’). It is based on two key ideas: People are conditionally averse to break norms of honesty and fairness (i.e., the emotional cost of breaking a norm is low if few people comply), and heterogeneous with regard to their concern for norms. The model explains (a) why cooperation in social dilemmas rises if players can previously announce their intended play, (b) why details of the communication protocol like the number of message senders and the order in which players communicate affect cooperation, (c) why players in sender-receiver games tend to transmit more information than a standard analysis would predict, and (d) why senders of false messages are often sanctioned if punishment is available.