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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 666:
The cost of lying

Tobias Lundquist, Tore Ellingsen (), Erik Gribbe and Magnus Johannesson ()

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.

Keywords: Deception; Communication; Lies; Promises; Experiments; (follow links to similar papers)

JEL-Codes: C91; D82; (follow links to similar papers)

40 pages, June 12, 2007

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