Deception and Reception: The Behavior of Information Providers and Users

39 Pages Posted: 7 Oct 2013 Last revised: 18 May 2017

See all articles by Roman M. Sheremeta

Roman M. Sheremeta

Case Western Reserve University

Timothy W. Shields

Chapman University - George L. Argyros School of Business & Economics; Chapman University - Economic Science Institute

Date Written: March 20, 2017

Abstract

We investigate the behavior of information providers (underwriters) and users (investors) in a controlled laboratory experiment where underwriters have incentives to deceive and investors have incentives to avoid deception. Participants play simultaneously as underwriters and investors in one-shot information transmission games. The results of our experiment show a significant proportion of both deceptive and non-deceptive underwriters. Despite the presence of deceptive underwriters, investors are receptive to underwriters’ reports, gleaning information content, albeit overly optimistic. Within our sample, deception by underwriters and reception by investors are the most profitable strategies. Moreover, participants who send deceptive reports to investors, but at the same time are receptive to reports of underwriters, earn the highest payoffs. These results call into question the characterization of duped investors being irrational.

Keywords: experiment, strategic communication, risk, deception, investment advice

JEL Classification: C72, C91

Suggested Citation

Sheremeta, Roman M. and Shields, Timothy W., Deception and Reception: The Behavior of Information Providers and Users (March 20, 2017). Journal of Economic Behavior & Organization, 137, 445–456 (2017). Available at SSRN: https://ssrn.com/abstract=2334470 or http://dx.doi.org/10.2139/ssrn.2334470

Roman M. Sheremeta

Case Western Reserve University ( email )

10900 Euclid Ave.
Cleveland, OH 44106
United States

Timothy W. Shields (Contact Author)

Chapman University - George L. Argyros School of Business & Economics ( email )

One University Drive
Orange, CA 92866
United States
714.289.2092 (Phone)

HOME PAGE: http://sites.google.com/site/timothywshields/

Chapman University - Economic Science Institute ( email )

One University Dr.
Orange, CA 92866
United States

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