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Would I lie to you? Strategic deception in the face of uncertain penalties

Author

Listed:
  • Cardak, Buly A

    (Department of Economics and Finance, La Trobe Business School, La Trobe University)

  • Neelim, Ananta

    (School of Economics, Finance and Marketing, RMIT University)

  • Vecci, Joseph

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Wu, Kevin

    (Department of Economics, Monash University, Australia)

Abstract

Using an experiment we investigate the effect of different centralised punishment mechanisms on deception and beliefs about deception in a principal-agent interaction that resembles many everyday expert advisor - client relationships. Agents have private information to transmit to Principals who must decide whether to follow Agent advice. Across our treatments, Agents face a range of expected penalties for deceptive behaviour with varying severity and monitoring probability. The Bayesian Nash equilibrium of the principal-agent interaction predicts penalties to have no effect on Agent behaviour. We find the magnitude of penalties to have important deterrent effects on deceptive Agent behaviour while Agents do not respond to changes in monitoring probabilities. Principal following behaviour increases in response to high penalties. However, it is unaffected by equivalent increases in monitoring. To help us understand the mechanism through which penalties deter deceptive behaviour, we test whether framing activates norms, providing an additional deterrence effect. We find norms are only activated by large penalties, providing a possible explanation for the impact of penalties on deceptive behaviour.

Suggested Citation

  • Cardak, Buly A & Neelim, Ananta & Vecci, Joseph & Wu, Kevin, 2017. "Would I lie to you? Strategic deception in the face of uncertain penalties," Working Papers in Economics 689, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0689
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    File URL: http://hdl.handle.net/2077/51443
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    More about this item

    Keywords

    Punishment; Deception; Principal Agent; Norm Induced Behaviour;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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