Hard information and cheap talk

It is pretty typical for economists to view information as either “hard” or else “soft.” The difference being the ability of the person receiving the information to verify the claim made. Soft information is unverifiable and is believed only when the person receiving it figures his interests and the interests of the person sending it are aligned.

So, when my wife suggests we meet for lunch at our favorite place in Carytown, I just go ahead and believe her. Probably, she really does want to meet for lunch instead of wanting to design an elaborate ruse to waste time. Soft information can be useful in cases like this.  This is cheap talk -- unverifiable and untrustworthy information, unless the interests of all the parties are sufficiently aligned.


Hard information is verifiable. Receivers of hard information are more likely to accept it as true even when the sender’s interests are not perfectly aligned with the receiver’s interests because false statements could be exposed (though, of course, the receiver might still verify statements whenever interests are very poorly aligned). UPS used to tell a story about a good employee who does not get a promotion and a great employee who does. Turns out, the difference was that when the good employee was asked a question, he returned with a verifiable answer to it; when the great employee was asked the same question, he returned with a boatload of verifiable information about it: shipment s left at time t, weighing w pounds and driven by driver d, etc., etc.

Of course, information is often neither hard nor soft, but somewhere in-between. Lots of information requires an effort by the person receiving it to turn it from soft information into hard information. A great example is a mathematical proof you might come across in a paper. Most of us, even if we are good at math, would have to make an effort to confirm that, in fact, for every epsilon there really is a delta such that…

Otherwise, and the way I usually do it, I just go ahead and believe the guy writing the proof. Here, information that could be verified is simply left as soft information and accepted based on the idea that the writer is probably not trying to get me to believe something about Proposition 26 that isn’t true.

But it is also generally true that soft information can be turned into verifiable statements when both the sender and the receiver make investments (time, effort, education, whatever). So, the “hardness” of information is variable and, more than that, a variable the listener can control. And that makes things more complicated.