Is it Worth it to Tell a Lie?

Is it Worth it to Tell a Lie?

Humans often resort to lies as a tool for leveraging on negotiation power. As noted by Lewicki and Stark[i], in a negotiation context, “lies misinform the opponent, eliminate or obscure the opponent choice alternatives, or manipulate the perceived costs and benefits of particular choice options open to the opponent”. However, in a world entirely populated by liars with divergent goals, messages would not be taken seriously by their recipients. The ability of less ethical people to manipulate the others’ beliefs relies on the existence of at least some individuals who have a significant aversion to lying.

There is a growing body of experimental economics literature on lying and deception aiming to reveal what motivates individuals to resort to such questionable communication methods. In an influential paper, Gneezy[ii] has introduced an interesting typology of lies with respect to their consequences on players’ payoffs. If the lie, defined as a misrepresentation of reality, brings about an improvement in both players’ well-being, we have a “Pareto white lie”; if the sender is worse-off but the receiver is better-off, we have “an altruistic white lie”. If the sender is better-off while the receiver is worse-off, this is the typical “selfish black lie”, which Gneezy acknowledges to be the most relevant category for economic interactions. Taking stock from an original sender–receiver experiment, he shows that when subjects can reap a non-negligible benefit from lying, many subjects do so, even if this involves a loss for their partner. Another important finding of these empirical studies is that humans present some form of aversion to lying, although its extent can vary greatly from one individual to another.

The broad topic of Lies and Deception in Experimental Economics has been covered by a special issue of the prestigious Journal of Economic Behavior and Organization, 2013. Besancenot, Dubart & Vranceanu (BD&V) contribute to that issue with a study on the mechanism of misleading communication in the negotiation context specific to the ultimatum game introduced by Güth et al.[iii] Their analysis sheds light on real life situations where private information can be used by a single party to manipulate beliefs and outcomes.

In line with the classical experiment, a “Proposer” is endowed with an amount of money and must make an offer to a second player as how to divide this sum between them. The “Responder” can accept the offer, in which case the endowment is divided as proposed, or reject it, in which case both players receive nothing. In order to allow the proposer to send misleading messages, in the original experiment developed by BD&V, the responder has only imperfect information about the proposer’s endowment. The proposer is then asked to send a message indicating the amount of money received at the outset of the game; this is unverifiable information for the responder. The computer-based experiment was developed at the ESSEC Experimental Lab. Subjects were recruited from the student population of ESSEC Business School and ESC Dijon in 2012.

It turns out that proposers resort to dishonest communication quite frequently and do so strategically. In 88.5% of the messages, proposers discount their endowment by 20.5% on average. Most important, lies are systematically associated with lower offers; for every 1-euro lie, on average proposers reduce their offer by 19 cents; this “lie strategic effect” increases with the endowment.

However, the responder’s decision whether to accept/reject the offer appears to depend only on the amount of the offer and not on the declared endowment. They behave as if the received message is genuine “cheap talk”. A 1-euro reduction in the offer reduces the acceptance rate by 3 percentage points.

If proposers reduce their offers because they “believe in their own lies”, but responders are more than skeptical, the final outcome is a net welfare loss, since the frequency of rejected offers (bringing zero gains for both players) will be higher than in a no-lie environment.

In this simple experiment, attempts to manipulate beliefs through lying are detrimental not only to those who receive the wrong message, but also to those who deliver it. Despite this, people in a position to lie do lie; they are probably victims of a self-confidence bias concerning their ability to cheat. If further research can show that lying systematically brings about a socially inefficient outcome, then this might provide an explanation for the emergence a social norm banning lying.

[i] Lewicki, R.J., Stark, N., 1996. What is ethically appropriate in negotiations: an empirical examination of bargaining tactics. Social Justice Research 9 (1),69–95

[ii] Gneezy, U., 2005. Deception: the role of consequences. American Economic Review 95 (1), 384–394.

[iii] Güth, W., Schmittberger, R., Schwartze, B., 1982. An experimental analysis of the ultimatum bargaining. Journal of Economic Behavior and Organization 3,367–388.

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