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Deception and reception: The behavior of information providers and users

Listed author(s):
  • Sheremeta, Roman M.
  • Shields, Timothy W.

We investigate the behavior of information providers (underwriters) and users (investors) in a controlled laboratory experiment where underwriters have incentives to deceive and investors have incentives to avoid deception. Participants play simultaneously as underwriters and investors in one-shot information transmission games. The results of our experiment show a significant proportion of both deceptive and non-deceptive underwriters. Despite the presence of deceptive underwriters, investors are receptive to underwriters’ reports, gleaning information content, albeit overly optimistic. Within our sample, deception by underwriters and reception by investors are the most profitable strategies. Moreover, participants who send deceptive reports to investors, but at the same time are receptive to reports of underwriters, earn the highest payoffs. These results call into question the characterization of duped investors being irrational.

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File URL: http://www.sciencedirect.com/science/article/pii/S0167268117300823
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Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 137 (2017)
Issue (Month): C ()
Pages: 445-456

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Handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:445-456
DOI: 10.1016/j.jebo.2017.03.019
Contact details of provider: Web page: http://www.elsevier.com/locate/jebo

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