Communicating about Confidence: Cheap Talk with an Ambiguity-Averse Receiver

Abstract

An expert, who is only informed of the probability of possible states, communicates with a decision-maker through cheap talk. The decision-maker considers different probability distributions over states as possible and is ambiguity averse. I show that all equilibria of the game are equivalent to partitional ones and that the most informative is interim dominant for the expert. Information transmission regarding probabilities that are bad news for the decision-maker is facilitated by ambiguity aversion. However, ambiguity aversion also makes information transmission impossible, whatever the preference misalignment, regarding probabilities that are good news for him. (JEL C72, D81, D83)