The Way People Lie in Markets: Detectable vs. Deniable Lies
56 Pages Posted: 27 Sep 2019 Last revised: 10 Dec 2021
Date Written: December 10, 2021
In a finitely repeated game with asymmetric information, we experimentally study how individuals adapt the nature of their lies when settings allow for reputation-building. While some lies can be detected ex post by the uninformed party, others remain deniable. We find that traditional market mechanisms such as reputation generate strong changes in the way people lie and lead to strategies in which individuals can maintain plausible deniability: people simply hide their lies better by substituting deniable lies for detectable lies. Our results highlight the limitations of reputation to root out fraud when a Deniable Lie strategy is available.
Keywords: Lying, Deniability, Reputation, Financial Markets, Experiment
JEL Classification: C91, D01, G41, M21
Suggested Citation: Suggested Citation