Reputational cheap talk versus prior information

Abstract: I study a setting where a sender communicates her information about a hidden state with a receiver who wants to match his action with that state. The sender strives to appear informed at the receiver's expense. I characterize the receiver's tradeoff between relying on the sender or on prior information about the state when picking his action in all informative equilibria. I show that the receiver relies only on prior information, irrespective of how informed the sender may be, if and only if prior information is neither sufficiently noisy nor sufficiently informative. My results highlight a complementarity that informative prior information facilitates high-quality communication under reputation concern.