Do Liars Believe? Beliefs and Other-Regarding Preferences in Disclosure Settings
Posted: 16 Jan 2011 Last revised: 8 May 2015
Date Written: January 14, 2011
Motivated by the analyst and investor setting we examine the behavior of subjects playing both roles of sender and receiver in an information transmission game. We also elicit the subjects’ beliefs of others’ strategic behavior, risk and other-regarding preferences. The results of the experiment indicate that 60 percent of senders adopt deceptive strategies by misreporting information. Nevertheless, 67 percent of receivers appear to believe senders by investing. The trusting behavior of receivers cannot be explained by a standard equilibrium (only 33 percent of subjects behave consistently with equilibrium predictions). However, it can be rationalized by accounting for beliefs (68 percent of subjects behave consistently with their own beliefs). Finally, the honest behavior of some senders can be explained by other-regarding preferences. Thus we find liars do believe, and honest individuals care about the payoffs of others’.
Keywords: experiment, strategic communication, level-n thinking, beliefs
JEL Classification: C72, C91, D82, D83
Suggested Citation: Suggested Citation