Ethics and Illusions: How Ethical Declarations Shape Market Behavior

47 Pages Posted: 23 Apr 2024

See all articles by John Manuel Barrios

John Manuel Barrios

Washington University in St. Louis - John M. Olin Business School; National Bureau of Economic Research

Jeremy Bertomeu

Washington University in St. Louis - John M. Olin Business School

Radhika Lunawat

University of California, Irvine - Accounting Area

Ibrahima Sall

Washington University in St. Louis

Multiple version iconThere are 2 versions of this paper

Date Written: April 20, 2024

Abstract

We examine the impacts of ethical declarations on market transactions through a controlled laboratory experiment, where privately-informed sellers issue a public report prior to a first-price auction. We find that while signing an ethical statement does not reduce misreporting by sellers, it significantly increases buyer trust, often skewing the terms of the trade in favor of sellers. Contrary to rational expectations, buyers consistently struggle to undo the bias. In counterfactual scenarios, from our structural analysis, we find that price efficiency improves when buyers rationally process uncertainty about sellers' ethical preferences, yet bias persists even when buyers have more accurate perceptions of sellers'’ ethical standards. Overall, our results suggests that disclosure interventions aimed at enhancing ethical conduct in market settings may not necessarily lead to more efficient pricing or reduced bias, and in some instances, may even disadvantage certain market participants.

Keywords: Misreporting, experiment, ethics.

JEL Classification: D53, G14, G41.

Suggested Citation

Barrios, John Manuel and Bertomeu, Jeremy and Lunawat, Radhika and Sall, Ibrahima, Ethics and Illusions: How Ethical Declarations Shape Market Behavior (April 20, 2024). Available at SSRN: https://ssrn.com/abstract=4801695 or http://dx.doi.org/10.2139/ssrn.4801695

John Manuel Barrios

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

National Bureau of Economic Research ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jeremy Bertomeu (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Radhika Lunawat

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

Ibrahima Sall

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

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