The Way People Lie in Markets
63 Pages Posted: 17 Jul 2020
Date Written: June 25, 2020
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: Suggested Citation