The Way People Lie in Markets
71 Pages Posted: 27 Sep 2019 Last revised: 20 Jul 2020
Date Written: July 17, 2020
In a finitely repeated game with asymmetric information, we experimentally study how individuals adapt their lying when settings allow for reputation and/or competition. While some lies can be detected ex post by the uninformed party, others remain deniable. We find that traditional market mechanisms, especially reputation, generate strong changes in the way people lie but do not
fundamentally lead to more honesty: people simply hide their lies better by substituting deniable lies for detectable lies. Our results highlight the limitations of traditional market mechanisms to root out fraud and stand in sharp contrast with the existing literature on intrinsic preferences for honesty.
Keywords: Dishonesty, Reputation, Competition, Financial Markets, Experiment
JEL Classification: C91, D01, G41, M21
Suggested Citation: Suggested Citation