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Truth, Trust, and Sanctions: On Institutional Selection in Sender–Receiver Games

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  • Ronald Peeters
  • Marc Vorsatz
  • Markus Walzl

Abstract

This paper reports on a laboratory experiment which investigates the impact of institutions and institutional choice in constant-sum sender-receiver games. We compare individual sender and receiver behavior in two different institutions: A sanction-free institution which is given by the bare sender-receiver game and a sanctioning institution which in addition offers the receiver the opportunity to (costly) sanction the sender after receiving feedback on the senders private information. We conduct the experiment in two phases: First, individuals are randomly assigned to an institution, and second they can choose the institution themselves.We find that sanctioning takes place predominantly after the receiver has trusted a lie by the sender. Those who are responsible for sanctioning are also responsible for truth-telling in excess with respect to models of rational payoff-maximizing agents.Thereby, the sanctioning institution exhibits more truth-telling. Most importantly, agents who sanction reveal preference for the sanctioning institution while the other subjects almost exclusively opt for the sanction-free institution. As a consequence, both institutions typically coexist in the second phase of the experiment and the sanctioning institution exhibits a higher level of truth-telling and lower aggregate material payoffs.To offer an explanation of our experimental findings, we formalize preferences for truth-telling as psychological payoffs and analyze the sender-receiver game as a dynamic psychological game à la Battigalli and Dufwenberg (2006). We demonstrate that standard models of social preferences are not able to explain observed sanctioning behavior and excessive truth-telling. Explicit psychological costs of lying and the exposition to a lie, however, are able to fill this gap. To this end, we model deontological and consequentialistic preferences for truth-telling and evaluate their respective explanatory power.

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File URL: http://hdl.handle.net/10.1111/sjoe.12003
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 115 (2013)
Issue (Month): 2 (04)
Pages: 508-548

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Handle: RePEc:bla:scandj:v:115:y:2013:i:2:p:508-548

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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References

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  1. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  2. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  3. Cai, Hongbin & Wang, Joseph Tao-Yi, 2006. "Overcommunication in strategic information transmission games," Games and Economic Behavior, Elsevier, vol. 56(1), pages 7-36, July.
  4. Crawford, Vincent P., 2001. "Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions," University of California at San Diego, Economics Working Paper Series qt6k65014s, Department of Economics, UC San Diego.
  5. Alm, James & McClelland, Gary H & Schulze, William D, 1999. "Changing the Social Norm of Tax Compliance by Voting," Kyklos, Wiley Blackwell, vol. 52(2), pages 141-71.
  6. Anabela Botelho & Glenn W. Harrison & Lígia Pinto & Elisabet E. Rutstrom, 2005. "Social norms and social choice," NIMA Working Papers 30, Núcleo de Investigação em Microeconomia Aplicada (NIMA), Universidade do Minho.
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Cited by:
  1. Raúl López-Pérez & Eli Spiegelman, 2013. "Why do people tell the truth? Experimental evidence for pure lie aversion," Experimental Economics, Springer, vol. 16(3), pages 233-247, September.
  2. Gurdal, Mehmet Y. & Ozdogan, Ayca & Saglam, Ismail, 2013. "Cheap talk with simultaneous versus sequential messages," MPRA Paper 45727, University Library of Munich, Germany.

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