Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2008:4: Detection Biases in Bluffing

Håkan J. Holm ()
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Håkan J. Holm: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: Beliefs in signals that reveal lies or truths are widespread. These signals may lead to a truth or lie detection bias if the probability that such a signal is perceived by the receiver is contingent on the truth value of the sender’s message. Such detection biases are analyzed theoretically in a bluffing game. The detection bias shrinks the equilibrium set to a unique non-pooling equilibrium, in which the better a player is at detecting lies the more often the opponent player will lie. With proper deception techniques such biases can in principle be used to extract hidden information.

Keywords: Bluffing; Game theory; Truth detection; Lie detection; Detection bias

JEL-codes: C72; D82

18 pages, February 29, 2008

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