Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 666: The cost of lying

Tobias Lundquist, Tore Ellingsen (), Erik Gribbe and Magnus Johannesson ()
Additional contact information
Tobias Lundquist: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Tore Ellingsen: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Erik Gribbe: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Magnus Johannesson: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

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

JEL-codes: C91; D82

40 pages, June 12, 2007

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