Loss Aversion and Lying Behavior: Theory, Estimation and Empirical Evidence

66 Pages Posted: 29 Nov 2016 Last revised: 12 Dec 2016

Ellen Garbarino

The University of Sydney

Robert Slonim

The University of Sydney; IZA Institute of Labor Economics

Marie Claire Villeval

National Center for Scientific Research (CNRS) - Groupe d'Analyse et de Théorie Economique (GATE); IZA Institute of Labor Economics; Department of Public Finance, University of Innsbruck

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Date Written: December 11, 2016

Abstract

We theoretically show that agents with loss-averse preferences facing a decision to receive a bad financial payoff if they report honestly or to receive a better financial payoff if they report dishonestly are more likely to lie to avoid receiving the low payoff the lower the ex-ante probability of the bad outcome. This occurs due to the ex-ante expected payoff increasing as the bad outcome becomes less likely, and hence the greater the loss that can be avoided by lying. We demonstrate robust support for this role of loss aversion on lying by reanalyzing the results from the extant literature covering 74 studies and 363 treatments, and from two new experiments that vary the outcome probabilities and examine lying for personal gain and for gains to causes one supports or opposes. To measure and compare lying behavior across treatments and studies, we develop an empirical method that estimates the full distribution of dishonesty when agents privately observe the outcome of a random process and can misreport what they observed.

Keywords: Loss Aversion, Dishonesty, Lying, Econometric Estimation, Experimental Economics

JEL Classification: C91, C81, D03

Suggested Citation

Garbarino, Ellen and Slonim, Robert and Villeval, Marie Claire, Loss Aversion and Lying Behavior: Theory, Estimation and Empirical Evidence (December 11, 2016). Available at SSRN: https://ssrn.com/abstract=2875989 or http://dx.doi.org/10.2139/ssrn.2875989

Ellen Garbarino

The University of Sydney ( email )

Robert Slonim

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Marie Claire Villeval (Contact Author)

National Center for Scientific Research (CNRS) - Groupe d'Analyse et de Théorie Economique (GATE) ( email )

93, chemin des Mouilles
Ecully, 69130
France
+33 472 86 60 79 (Phone)
+33 472 86 60 90 (Fax)

HOME PAGE: http://www.gate.cnrs.fr/equipe/perso/villeval/villeval.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Department of Public Finance, University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

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