Strategic communication of narratives
Abstract: We conceptualize the communication of narratives as a cheap-talk game under model uncertainty. The sender has private information about the true data generating process of publicly observable data. The receiver is uncertain about how to interpret the data, but aware of the sender's incentives to strategically provide interpretations ("narratives") in her favor. We consider a general class of decision rules under ambiguity resolving the receiver's ignorance of the true data generating process, including maximum likelihood expected utility. The set of equilibria is characterized by a positive integer $N$: there is an equilibrium that induces $n$ different actions for each $1\leq n \leq N$. The diverting power of the sender is weaker than with a na\"ive receiver being unaware of the sender's incentives. Surprisingly, the receiver sometimes prefers to be na\"ive.
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