Ratio Working Papers,
The Ratio Institute

Abstract: The paper presents an experimental study of truth telling and trust in communication under asymmetric information. In a two-player Communication Game (cf., Gneezy, 2005), an informed “advisor” sends a message to an uninformed “decision maker”, who then has to decide whether to follow the advice. The advisor may gain more by lying in the message. In two treatments, either a cooperative or a competitive context is induced before participants play the Communication Game. Advisors are unaffected by this contextual variation. In contrast, decision makers in the competitive context trust the advice less than in the cooperative context. The data provide evidence that this change in trust is due to different perceptions of the incentive structure. Individual differences in behavior can be related to certain personal characteristics (field of studies, gender, personality test scores). The data are largely in line with Subjective Equilibrium Analysis (Kalai & Lehrer, 1995).

Keywords: experimental economics; truth telling; trust; asymmetric information; individual differences; context effects; subjective beliefs

JEL-codes: D01; D80; Z13

45 pages, April 10, 2007

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