“Cheap talk,” a game theory concept, took on personal meaning for Stanford’s Paul Oyer during his foray into the online dating “marketplace” at OkCupid.

He was candid on some parts of his profile but edited details in other areas is explained by game theory’s “cheap talk,” which suggests that the value of editing and embellishing information is based on expected utility – potential dating partners’ selection criteria – in relation to the possible cost of selective reporting – “overcoming barriers to entry” but being disqualified for lack of full disclosure.

Data from OkCupid and match.com suggest that many participants engage in cheap talk, to enhance physical attractiveness and fitness as well as income.
As a result, “profile inflators’ curatorial enhancements” (non-cooperative cheap talk) led most to discount most all claims as “cheap talk,” leading to a significant disadvantage for truthfully uninflated profiles (cooperative cheap talk), noted Oyer.

Marketing and advertising campaigns have the reputation for employing cheap talk, documented by Dartmouth’s Jonathan Zinman and Eric Zitzewitz, who found that ski resorts exaggerate snowfall, especially during periods including holidays and weekends.

However, external verification through real time reporting via smartphones reduced the revenue-enhancing effect of meteorological exaggeration, according to Zinman and Zitzewitz.

Like resort marketers, CEOs may engage in a cycle of optimistic forward-looking statements, based on expectations that any statement would be discounted as “cheap talk,” noted Harvard’s Jeremy Stein.

Similarly, before he became a member of the Federal Reserve, Stein found that official statements by the Chair of the Federal Reserve were more credible and less likely to contain “cheap talk” when a target range for inflation was announced, instead of a precise value.

Stock analysts, too, are a source of influential “cheap talk,” particularly when a company goes public, because their employer’s other services securities underwriting become more valuable, observed National Taiwan University’s Hsiou-wei Lin and Maureen McNichols of Stanford.

They found that analysts employed by a bank that worked with the target company provided higher forecasts than independent analysts.
As a result, the stock market was “less responsive” to assumed “cheap talk” of in-house analysts.

To manage “cheap talk,” Stanford’s Nobel laureate A. Michael Spence modeled signaling information to a valued target audience in the job market.
In online dating, this could be sending a virtual rose, to indicate greater-than-average interest in meeting, resulting in increased acceptance rates for participants with “average desirability” of income level and physical characteristics.

“Signaling” has become a familiar process in university application processes, when candidates indicate clear preference and intention to attend if accepted, at the “cost” of foregoing other early decision applications.

Like “signaling,” external verification of “cheap talk” claims review sites like Yelp.com, or even friend-of-a-friend accounts can increase the “cost” and reduce exaggerated claims.

-*When has “cheap talk” contributed to achieving goals?
-*How do you manage “cheap talk” by others?

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