Publication: Information asymmetry and deception in the investment game
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2012-10
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Abstract
Several situations in our daily interactions are characterized by uncertainty and
asymmetric information regarding the final outcomes. For example, an investor may
overstate a project’s value, or a superior may choose to under, or over, state the gains from a
project to a subordinate. We modify the standard investment game to study the effect of
possible deception, i.e. over-, or under-, statement of the true value, on investee (and
investor) behavior. We find that deception is prevalent and around 66% of the investors send
false messages. Investors both over-, and under-, state the true value of the multiplier, k. We
elicit investee beliefs and find that investees are naive in that almost half of them believe the
message they receive. Meanwhile, a large proportion of investors think that sending a
message was useful. The introduction of the possibility of deception does not affect trust or
trustworthiness on average, but deceivers make the deceived worse off, return less and are
more likely to report lying to avoid harming others. Finally, an increase in information
asymmetry increases deception