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The cost of lying

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Author Info
Lundquist, Tobias (Dept. of Economics, Stockholm School of Economics)
Ellingsen, Tore () (Dept. of Economics, Stockholm School of Economics)
Gribbe, Erik (Dept. of Economics, Stockholm School of Economics)
Johannesson, Magnus () (Dept. of Economics, Stockholm School of Economics)

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Abstract

We experimentally investigate the effect of cheap talk in a bargaining game with one-sided asymmetric information. A seller has private information about his or her skill and is provided an opportunity to communicate this information to a buyer through a written message. Four different treatments are compared; one without communication, one with free-form communication, and two treatments with pre-specified communication in the form of promises of varying strength. Our results suggest that lying about private information is costly and that the cost of lying increases with the size of the lie and the strength of the promise. Freely formulated messages lead to the fewest lies and the most efficient outcomes.

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Publisher Info
Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 666.

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Length: 40 pages
Date of creation: 12 Jun 2007
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Handle: RePEc:hhs:hastef:0666

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Related research
Keywords: Deception Communication Lies Promises Experiments

Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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Cited by:
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  1. Stefano Demichelis & Jörgen W. Weibull, 2007. "Language, meaning and games: a model of communication, coordination and evolution," Carlo Alberto Notebooks 61, Collegio Carlo Alberto. [Downloadable!]
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