Honesty, lemons, and symbolic signals

Arbeitspapier

Under asymmetric information, dishonest sellers lead to market unraveling in the lemons model. An additional cost of dishonesty is that language becomes cheap talk. We develop instead a model where people derive utility from actions (what they say), as well as from outcomes, so talk is costly. We find that the existence of honest agents that mean what they say is not enough to make trade more likely, unless a traceability condition that prevents arbitrage is met. When we introduce a continuum of misrepresentation cost types and qualities, full market unraveling is not possible and babbling equilibria are eliminated. More generally, costly talk is a special kind of signal, a symbolic signal that presupposes linguistic conventions, otherwise truth and falsehood, as well as misrepresentation costs, are undefined.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Serie Documentos de Trabajo ; No. 492

Classification and Topics

• Classification: Wirtschaft
• Subject: asymmetric information ; honesty ; trust ; symbols ; signals ; costly talk ; Asymmetrische Information

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Streb, Jorge M. ; Torrens, Gustavo
• Event: Veröffentlichung
• (who): Universidad del Centro de Estudios Macroeconómicos de Argentina (UCEMA)
• (where): Buenos Aires
• (when): 2012

Further information

• Handle: http://hdl.handle.net/10419/84411
• Last update: 10.03.2025, 11:43 AM CET