Renegotiation-Proof Cheap Talk
An informed Expert and an uninformed Decision-Maker, with conflicting interests, engage in repeated cheap talk communication in a sequence of new decision problems. While the Decision-Maker's optimal payoff is attainable in some subgame perfect equilibrium, no payoff profile close to the Decision-Maker's optimal one is immune to renegotiation. Pareto efficient renegotiation-proof equilibria entail a compromise between the Expert and the Decision-Maker. This could involve the Expert being truthful and the Decision-Maker not fully utilizing this information to their advantage. The Decision-Maker's maximal renegotiation-proof equilibrium payoff depends on the Expert's preferences and the prior distribution of the state. In the Crawford and Sobel (1982) environment a more biased Expert harms the Decision-Maker. In a model with transparent Expert motives a more volatile environment harms the Decision-Maker while helping the Expert.