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Lying opportunities and incentives to lie: Reference dependence versus reputation

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  • Feess, Eberhard
  • Kerzenmacher, Florian

Abstract

Recent experiments on lying behavior show that the lying frequency in case of low outcomes increases in the ex-ante probability of high outcomes. This finding is in line with models consisting of internal lying costs and external reputation costs and rejects certain other models, but does not allow for a clean test of models with reference dependent loss aversion. To compare the explanatory power of reputation models and loss aversion models, we manipulate the ex-ante probability that lying is possible at all. We show that the reputation model predicts that the lying frequency decreases in the probability that lying is possible, while the loss aversion model predicts the opposite. Our experimental results strongly support the reputation model. From an applied perspective, our results suggest that reducing the probability that lying is possible may be counterproductive.

Suggested Citation

  • Feess, Eberhard & Kerzenmacher, Florian, 2018. "Lying opportunities and incentives to lie: Reference dependence versus reputation," Games and Economic Behavior, Elsevier, vol. 111(C), pages 274-288.
    • Handle: RePEc:eee:gamebe:v:111:y:2018:i:c:p:274-288
    DOI: 10.1016/j.geb.2018.07.003
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    Cited by:

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    5. Drouvelis, Michalis & Pearce, Graeme, 2023. "Is there a link between intelligence and lying?," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 182-203.

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    More about this item

    Keywords

    Dishonesty; Truth-telling; Lying; Reputation models; Loss aversion; Experimental economics;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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