Cheap talk and cooperation in Stackelberg games

We carry out experiments on the Stackelberg game and the second-play Stackelberg game where the leader can revise his decision after the follower has decided. In the second-play Stackelberg game, the leader’s first announcement is cheap talk. The game settings studied include fixed pairs and random matching, and settings where the follower’s information about the leader’s payoffs is complete or incomplete. The results show that a high percentage of players converge to cooperative and equal-payoffs outcomes in fixed pairs and to Cournot-Nash equilibrium outcomes in random matching. There are no Stackelberg equilibrium outcomes. We conclude that cheap talk is used to support cooperation in fixed pairs. This is the first experiment on cheap talk in a Stackelberg setting and the results are in line with the coordination and reassurance hypotheses presented earlier in the cheap talk literature. JEL classification codes: C72, C91, D43, D82, L13