Experimental Evidence on Signal-Jamming Models of Fraudulent Misreporting

65 Pages Posted: 8 Dec 2012

See all articles by Brian Kluger

Brian Kluger

University of Cincinnati - Department of Finance - Real Estate

Steve L. Slezak

University of Cincinnati - Department of Finance - Real Estate

Date Written: November 12, 2012

Abstract

The paper develops an experimental reporting game that has a unique signal-jamming equilibrium (SJE) where managers exaggerate the truth and market participants correct the managers’ reports by a constant independent of the state. During experimental sessions, managers exaggerate and market participants correct on average. However, most subjects deviate from SJE behavior: (1) both managers and market participants use mixed strategies that are dominated by pure strategies, and (2) managers exaggerate by more and market participants correct by less when the observed state is low. These behaviors provide a parsimonious explanation for several empirical regularities documented in the literature on fraud.

Keywords: fraud, signal jamming

JEL Classification: G30, C9

Suggested Citation

Kluger, Brian D. and Slezak, Steve L., Experimental Evidence on Signal-Jamming Models of Fraudulent Misreporting (November 12, 2012). Available at SSRN: https://ssrn.com/abstract=2186442 or http://dx.doi.org/10.2139/ssrn.2186442

Brian D. Kluger (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
513-556-1688 (Phone)

Steve L. Slezak

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States

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