Explanation and Misrepresentation in the Laboratory
AbstractWe report the results of an experiment designed to examine the effect of opportunity to provide an explanation for inaccurate results and predictability of behavior on managersÃ¢?? reporting bias and investorsÃ¢?? ability to decipher the bias. We conduct 20 experimental sessions, each comprised of one manager and three or four investors. The manager has an incentive, in general, to inflate investorsÃ¢?? expectations and investors have an incentive to accurately predict value. We find that the manager reports with an upward bias a majority of the time. The magnitude of the bias, however, is lessened considerably when the managerÃ¢??s reporting behavior is unpredictable and the manager has an opportunity to explain inaccurate (biased) reports. The data suggest that under such conditions the manager seeks to avoid reporting inaccurately and having to choose an explanation. We also find that investors adapt to the managerÃ¢??s behavior and, strikingly, anticipate that explanation dampens reporting bias.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University in its series Experimental Economics Center Working Paper Series with number 2006-25.
Date of creation: Sep 2006
Date of revision:
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J. Todd Swarthout).
If references are entirely missing, you can add them using this form.