Cheap Talk

Cheap talk is costless, non-binding communication in strategic settings. In game theory, messages are cheap talk when they do not directly affect payoffs — they cost nothing to send or to fake. Crawford and Sobel (1982) proved that even without costs, cheap talk can convey information when sender and receiver interests are partially aligned, though the informativeness decreases as interests diverge.

Cheap talk contrasts with honest signaling, where credibility is guaranteed by differential cost rather than common interest. The evolutionary instability of costless signals in animal communication suggests that cheap talk equilibria may be fragile outside institutional enforcement. In human settings, cheap talk appears in political promises, earnings guidance, and preference surveys — contexts where words lack material consequences but may still coordinate expectations.

Whether cheap talk genuinely conveys private information or merely selects among multiple coordination games remains contested. The distinction matters for behavioral economics, where stated preferences often diverge from revealed ones.