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Information asymmetry and deception in the investment game

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  • Irma Clots-Figueras
  • Roberto Hernán
  • Praveen Kujal

Abstract

Several situations in our daily interactions are characterized by uncertainty and asymmetric information regarding the final outcomes. For example, an investor may overstate a project’s value, or a superior may choose to under, or over, state the gains from a project to a subordinate. We modify the standard investment game to study the effect of possible deception, i.e. over-, or under-, statement of the true value, on investee (and investor) behavior. We find that deception is prevalent and around 66% of the investors send false messages. Investors both over-, and under-, state the true value of the multiplier, k. We elicit investee beliefs and find that investees are naive in that almost half of them believe the message they receive. Meanwhile, a large proportion of investors think that sending a message was useful. The introduction of the possibility of deception does not affect trust or trustworthiness on average, but deceivers make the deceived worse off, return less and are more likely to report lying to avoid harming others. Finally, an increase in information asymmetry increases deception

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Bibliographic Info

Paper provided by Universidad Carlos III, Departamento de Economía in its series Economics Working Papers with number we1227.

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Date of creation: Oct 2012
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Handle: RePEc:cte:werepe:we1227

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  1. Santiago Sanchez-Pages & Marc Vorsatz, 2004. "An Experimental Study of Truth-Telling in a Sender-Receiver Game," ESE Discussion Papers 128, Edinburgh School of Economics, University of Edinburgh.
  2. Sjaak Hurkens & Navin Kartik, 2009. "Would I lie to you? On social preferences and lying aversion," Experimental Economics, Springer, vol. 12(2), pages 180-192, June.
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