The Way People Lie in Markets

57 Pages Posted: 27 Sep 2019

See all articles by Chloe Tergiman

Chloe Tergiman

The Pennsylvania State University

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS; IZA Institute of Labor Economics

Date Written: September 18, 2019

Abstract

In a finitely repeated game with asymmetric information, we experimentally study how reputation and standard market mechanisms change the nature of fraudulent announcements by experts. While some lies can be detected ex post by investors, other lies remain deniable. Lying behavior suggests that individuals care more about the consequences of being caught, rather than the act of lying per se. Allowing for reputation reduces the frequency of lies that can be detected but has no impact on deniable lies: individuals simply hide their lies better and fraud persists. Competition without reputation increases risky lies and never protects investment.

Keywords: Dishonesty, Reputation, Competition, Financial Markets, Experiment

JEL Classification: C91, D01, G41, M21

Suggested Citation

Tergiman, Chloe and Villeval, Marie Claire, The Way People Lie in Markets (September 18, 2019). Available at SSRN: https://ssrn.com/abstract=3455904 or http://dx.doi.org/10.2139/ssrn.3455904

Chloe Tergiman

The Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Marie Claire Villeval (Contact Author)

Groupe d'Analyse et de Théorie Economique (GATE), CNRS ( 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

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