Who Cares When Value (Mis)reporting May Be Found Out?

51 Pages Posted: 1 Feb 2022

See all articles by Daniela Teresa di Cagno

Daniela Teresa di Cagno

LUISS Guido Carli

Werner Güth

Max Planck Institute for Research on Collective Goods; Luiss Guido Carli University

Tim Lohse

Berlin School of Economics and Law; Max Planck Institute for Tax Law and Public Finance

Francesca Marazzi

CEIS, University of Rome Tor Vergata

Lorenzo Spadoni

University of Cassino and Southern Lazio

Date Written: January 31, 2022

Abstract

In an ultimatum bargaining, we investigate lying as falsely stating what one privately knows without, however, excluding that others find out the truth. Specifically, we modify the Acquiring-a-Company game. Privately informed sellers send messages about the alleged value of their company to potential buyers. Via random information leaks, they can also learn the true value before proposing a price which the seller finally accepts or not. Two-thirds of all sellers exaggerate the company’s value (especially if the true value is small) but increasing the leak probability surprisingly only mildly increases truth telling. Instead, it reduces the size of the lies. Moreover, it decreases overreporting (exaggerating the value to sell at a higher price) but increases underreporting (stating values below the actual ones to increases chances of trade). Buyers who found out value misreporting anchor their price proposals on the true value but do not explicitly discriminate against liars. In contrast, sellers are fully opportunistic and make their acceptance decision mainly dependent on whether the resulting payoff is positive. Thus, morality concerns do not seem to matter much in this market exchange. Altogether probabilistic leaks enhance trade and welfare what suggests to politically facilitate and encourage e.g. whistle blowing.

Keywords: Acquiring-a-company experiments, Information leaks, Cheap talk (Not) Lying, Ultimatum bargaining

JEL Classification: C78, C91, D83, D91

Suggested Citation

di Cagno, Daniela Teresa and Güth, Werner and Lohse, Tim and Marazzi, Francesca and Spadoni, Lorenzo, Who Cares When Value (Mis)reporting May Be Found Out? (January 31, 2022). CEIS Working Paper No. 531, Available at SSRN: https://ssrn.com/abstract=4022439 or http://dx.doi.org/10.2139/ssrn.4022439

Daniela Teresa Di Cagno

LUISS Guido Carli ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Werner Güth

Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

Luiss Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Tim Lohse

Berlin School of Economics and Law ( email )

Badensche Strasse 50-51
Berlin, D-10825
Germany

HOME PAGE: http://www.hwr-berlin.de/en/prof/tim-lohse

Max Planck Institute for Tax Law and Public Finance

Marstallplatz 1
Munich, 80539
Germany

HOME PAGE: http://www.tax.mpg.de/en/pub/public_economics/research_affiliates/tim_lohse.cfm

Francesca Marazzi (Contact Author)

CEIS, University of Rome Tor Vergata ( email )

Via Columbia 2
Rome, Lazio 00133
Italy

Lorenzo Spadoni

University of Cassino and Southern Lazio ( email )

Via Sant'Angelo, località Folcara
Cassino (FR), 03043
Italy

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