Lying and Friendship Sugato Chakravarty, Yongjin Ma, Sandra Maximiano∗ This version: March, 2011 Abstract The goal of this paper is to investigate the interaction between social ties and deceptive behavior within an experimental setting. To do so, we implement a modified sender-receiver game in which a sender obtains a private signal regarding the value of a state variable and sends a message related to the value of this state variable to the receiver. The sender is allowed to be truthful or to lie about what he has seen. The innovation in our experimental design lies in the fact that, in contrast to the extant sender-receiver games, the receiver can take no action – which eliminates strategic deception. A further innovation lies in the fact that subjects (i.e., senders) are not restricted to choose between truth telling and a unique type of lie but, instead, are allowed to choose from a distinct set of allocations that embodies a multi-dimensional set of potential lies. Our experimental design is, therefore, able to overcome an existing identification problem by allowing us to disentangle lying aversion from social preferences. We implement two treatments: one in which players are anonymous to each other (strangers); and one in which players know each other from outside the experimental laboratory (friends). We find that individuals are less likely to lie to friends than to strangers; that they have different degrees of lying aversion and that they lie according to their social preferences. Pro-social individuals appear to be more lying averse. If they lie, however, they are equally likely to do so with friends and strangers. The deceptive behavior of selfish individuals mimics those of pro social types only when subjects play with friends. Overall, in addition to social preferences, friendship appears to be an important factor in improving our understanding of deceptive behavior. Chakravarty and Ma: Department of Consumer Sciences, Purdue University, West Lafayette, IN 47907, US. Maximiano: Department of Economics, Krannert School of Management, Purdue University, West Lafayette, IN 47907, US. Corresponding author: Sandra Maximiano, Purdue University, Krannert School of Management, room 523. 403 West State Street. IN 47907-2056. Phone: 765-496-8049. Email:[email protected] We thank Timothy Cason and the seminar participants in the experimental Brown Bag seminar at Purdue, and the seminar participants at ESA meetings in Copenhagen, 2010, at the university of Amsterdam, at the University of Rotterdam for their helpful comments and suggestions. ∗ 1 Introduction We are all liars! We lie when it is in our best interest to do so - a fact that is consistent with standard economic paradigm. As students, we lie about our abilities to impress our professors; as workers we fabricate excuses for oversleeping and job tardiness; as spouses, we may tell little “white lies” about where we were on our way back from work or what we may have purchased on the sly; as friends, we may comfort an overweight friend by telling her she looks wonderful; as politicians we make unrealistic promises that we have no intention of keeping, simply to improve our chances of being elected; as lawyers, we may fabricate far-fetched theories in order to improve the likelihood of winning the case; as car dealers, we lie about our inventory and other aspects of the car in order to improve our chances of making the sale. Such examples, encompassing every aspect of our daily lives, can go on and on. No matter what the context, the existence of private information is a necessary condition for lying, but not necessarily a sufficient one. Just as important, not everyone lies when lying is incentive compatible. And even if lying is encouraged and rewarded, through perverse incentives, people often set their own boundaries between unethical and self, or socially approved, deception, weigh the costs and benefits of lying and, sometimes, may choose tell the truth even when it is economically disadvantageous to do so. Recent experimental evidence shows that this is, indeed, the case. Gneezy (2005), for instance, finds a statistically significant level of lying aversion. Using a sender-receiver game (Crawford and Sobel, 1982) he shows that senders are more likely to lie the higher their own potential gains, and less likely to do so the more lying damages the receiver’s payoffs. Other studies explore the robustness of Gneezy (2005)’s findings. For instance, Sutter (2009) considers sophisticated deception and reports that many people tell the truth with the intent to deceive their partners. Hurkens and Kartik (2009) confirm the existence of lying aversion, but they contest the role of consequences in deception that can be inferred from Gneezy’s results. In particular, they show that in both theirs, and in Gneezy’s experiments, subjects are one of two types: those who never lie or those who lie whenever the outcome obtained by lying is preferred over the one obtained by telling the truth. In subsequent work, Erat and Gneezy (2009) consider white lies and find evidence of lying aversion independent of any social preferences over outcomes. 1 Our paper has two main goals. First, we investigate whether individual lying behavior is sensitive to friendship ties.1 More specifically, how is an individual’s lying aversion affected by friendship and how does friendship change the pattern of lies he chooses to tell? We wish to underscore that although market relationships are primarily instrumental, and economic theories are impersonal, the individuals involved are not and, in many cases, have close personal ties. As theories of social distance, and experimental evidence, have shown, other-regarding preferences are stronger between physically and emotionally connected individuals than between strangers.2 Therefore, how is the preference for fairness affected by a potentially higher duty of honesty towards a friend? Second, we wish to characterize an accurate description of individual lying behavior. In our view, the classification of people as either “moral types” (never lie) or “economic types” (lie whenever the allocation from lying is preferred) is simplistic, unrealistic, and driven mainly by design. A large spectrum of individuals weighs the morality costs and the benefits (individual or social depending on social preferences) from lying, and decides whether to lie or tell the truth. Therefore, by accurately identifying these individuals, we seek to minimize the type II error that exists in the previous classification, allowing for a sharper inference on the intensity of lying aversion in a laboratory setting. We use a modified sender-receiver game with four possible true states and four possible monetary payoffs for both the sender and the receiver in each of those states. We elicit senders’ messages for each possible true state. The sender may lie or tell the 1 Social psychologists have conducted empirical research on lying and social distance is one dimension explored. However, this research relies on surveys and self daily reports of individuals lying behavior thus suffering from inaccurate reporting. DePaulo et al. (1996, p.992) recognizes the problem and writes: “because of lapses in memory and conscientiousness, participants may have neglected to record some of their lies. There also may have been times when they did not even realize that they had told a lie”. 2 The stream of research on the relation of social preferences and social distance is relevant for our study. For example, Hoffman et al. (1996) investigate how social distance influences fairness. They find that subjects have preprogrammed and unconscious rules of social exchange behavior when they interact with other subjects. They suggest that a decrease in perceived “social distance” increases donations in dictator games. Bohnet and Frey (1999) find that closer social distance increases the fairness of the outcome. Polzer et al. (2009) compare allocations to friend and stranger in an ultimatum game. They report that friend demands significantly less to reach an agreement than stranger. Glaeser et al. (2000) match subjects at various social distances in a trust game and find that closer social distance increase both trust and trustworthiness. Leider et al. (2009) report that “directed altruism increases giving to friend by 52 percent relative to random stranger”. Reuben and van Winden (2008) use between-subject design in a three-player power to take game to investigate the effect of social distance on negative reciprocity. They find friends are more likely to punish the proposer and more likely to coordinate their punishment. 2 truth and the sender’s message is binding. Therefore, in our experiment the receiver has no choice to make. This way we exclude, by design, any possibility for strategic lying by the sender. However, before subjects play the actual sender-receiver game, we implement a modified dictator game. This first stage aims at obtaining the ranking of preferences of senders for each of the four allocations.3 To investigate the relationship between friendship ties and lying behavior, we consider two treatments: (1) a treatment where subjects do not know each other (the strangers treatment) and a treatment where pairs of friends play together (the friends treatment). We wish to underscore that our specific two stage experimental design makes a methodological contribution to the extant literature on lying aversion. To wit, the modified sender-receiver game we implement in the first stage not only eliminates strategic deception but, more importantly, also solves an identification problem4 in the following way: It allows us to directly distinguish between lying aversion and outcome oriented social preferences, without the need for explicitly eliciting social preferences. So, for instance, the number of lies a subject tells is, in our experiment, a sufficient statistic to infer the subject’s lying aversion. Recall that, in our design, senders have to first choose among the four monetary allocations – the allocation to be implemented in each of the four possible true states. Note that, independent of any distributional concerns, the truth is incentive compatible only once. Therefore, if we observe less than three lies from a given subject, we can safely infer that this particular subject has procedural preferences, and exhibits lying aversion, at least to a certain degree. In addition, we also capture a more accurate distribution of lying behavior. Subjects with a high degree of lying aversion will never lie and subjects with an intermediary degree of lying aversion will lie less than three times. The economic types in our experiment consist of either of those individuals: those with a sufficiently low degree of lying aversion or those who lie whenever they have an incentive for doing so. The economic types are then expected to lie 3 out of 4 times.5 Moreover, by comparing the messages chosen in the sender-receiver game to 3 So, for instance, if the four possible allocations are denoted as A, B, C and D, one sender may rank her preference as C, B, D, A while another sender may rank his preference as D, C, A, B... and so on with each of the other senders. The bottom line is that each sender will reveal her distinct ranking preference before the start of the main experiment. 4 The identification problem here refers to standard sender-receiver games being unable to distinguish between why subjects lie – because of lying aversion or because of social preference. 5 Another way of expressing this is to say that economic liars will tell a lie whenever they have an incentive to do so. 3 those same individuals’ ranking preferences from the modified dictator game, we can study the relationship between the type of lies individuals decide to tell and their respective social preferences. Our findings are as follows. In line with the previous studies, we find that subjects have procedural preferences and that a significant proportion of individuals are averse to lying. However, our results indicate that individuals lie if the benefits from lying compensate the moral costs from doing so. Our data shows that 15% of individuals never lie, 35% are economic types and lie whenever they have an incentive to do so, and 50% exhibit a certain degree of lying aversion that restricts them from implementing their most preferred outcome. Also, our results show a relationship between social preferences and lying behavior. First, fair (or, inequity averse) subjects seem more lying averse than selfish types and, second, the different pattern of lies is explained by the heterogeneity in individuals’ social preferences. Conditional on gains and losses for themselves and others, individuals are more willing to lie when lying implements an equal allocation. Related to friendship ties, we show that friendship significantly affects behavior. First, individuals are less likely to tell a lie in the friends treatment. In particular, we observe a significantly higher (significant at the 0.01 level) proportion (40%) of individuals that never lie in the friends treatment as compared to the strangers treatment (15%). Second, despite 30% of subjects who lie to a friend (compared to 33% who lie to strangers) whenever they have an incentive to do so, they tell significantly fewer selfish lies (relative to selfish lies in the strangers treatment).6 Using a within-subject design, we find that all the above results are robust when the same subjects play both with strangers and with friends. The remainder of this paper proceeds as follows. The next section presents our experimental setup and the main differences from earlier experiments. Section 3 discusses the behavioral predictions. Section 4 presents the experimental procedure. The main features of the data and the empirical results are presented in Section 5. Section 6 discusses the robustness of the results. Section 7 summarizes and concludes. 6 Specifically, 44% of the lies are selfish lies in the friends treatment and 67% of the lies are selfish lies in the strangers treatment. The difference is significant at the 0.01 level. 4 2 Experimental setup Our setting comprises a non strategic, four-outcome version of the cheap talk senderreceiver game by Crawford and Sobel (1982). In our game, there are four equally likely states of the world, A, B, C, and D. Each state is mapped into four possible payoff allocations for both the sender and the receiver. Table 1 I shows the allocation payoffs. Nature moves first and determines the true state. The sender, and only the sender, is informed about the true state and sends a binding message to the receiver from the set of possible states. The sender can either tell the truth or lie. The message determines which of the four payoff options is implemented. The sender knows the payoff allocations but the receiver is never informed about what these may be. Table 1 ALLOCATION PAYOFFS A B C D (20, 20) (15, 30) (30, 15) (25, 25) As alluded to earlier, each subject participates sequentially in two independent games. The first one is a ranking game and the second is a message game that implements our modified sender-receiver game. The ranking game itself is a modified dictator game in which senders reveal their distributional preferences regarding the four specified payoff allocations for both the sender and receiver. The ranking choice is incentive-compatible with the highest ranked allocation having the highest probability of being implemented. In particular, there is a 50% chance that players’ payoffs in the ranking game are given by the sender’s first preferred option, 25% chance that players’ payoffs are given by the sender’s second preferred option, 15% chance that the senders’ payoffs are given by the sender’s third preferred option, and 10% chance that the senders’ payoffs are given by the sender’s fourth preferred option.7 7 Our choice of these relative probabilities reflects our desire to incentivize the subjects in revealing their true outcome preferences and in their understanding that their first choice will be selected with a high likelihood. By the same token, we did not wish to put very little weight on subjects’ third and fourth preferred outcomes to ensure that these did not become random choices. In that sense, these probabilities could be tweaked a bit without significantly altering the ranking 5 Our treatment variable is the friendship ties that exist between the sender and receiver. We compare two different treatments. One, the baseline, is the strangers treatment (strangers) where participants are anonymously and randomly matched to another participant. The other treatment is the friends treatment (friends) where each participant is required to bring a friend to the experiment. Pairs of friends remain matched throughout the whole duration of the experiment. It should be noted that our design relates closely with that of Erat and Gneezy (2009). Like the subjects in their experiment, our subjects play the sender-receiver game only once. However, there are important differences between their design and ours. First, we employ a non strategic version of the sender-receiver game which eliminates the possibility of sophisticated deception given that the receiver has no decisions to make. In our setting, the sender’s message is binding and both the receiver’s, and sender’s, payoffs are determined by the sender’s message.8 Second, we do not have the same allocation associated with the true state. In other words, our design allows for the “true state” to be subject specific in that each state of nature in our setting is mapped into a different allocation. In order to observe a sender’s truth telling behavior in different true states we use the strategy method (see Selten, 1967). That is, senders, before observing the true state, have to indicate, for each potential true state, which message they want to send. The main advantage of using the strategy method is that, by getting the sender to pick a vector of messages, we are able to disentangle lying aversion from outcome oriented social preferences in a straightforward way. We discuss this topic in detail in the next section. From a game-theoretic perspective the use of the strategy method is comparable to the direct method, in which subjects would make a single choice only for a realized true state. Behaviorally, it may affect subjects’ behavior (see, for example Brosig et al., 2003; Güth et al., 2001). A priori, there is no reason to think that truth-telling behavior would be affected one way or another by the use of the strategy method, or that there would be an interaction effect between the use of the method and our treatment variable – friendship. Also, a number of experimental outcome displayed by the subjects. 8 In the Erat and Gneezy (2009) setting, the sender observes a roll of 6-sided dice and sends a non-binding message about the outcome of the roll of the dice. The receiver is asked to pick an integer between 1 and 6 and, if the number equals the true outcome, then option A is implemented, otherwise option B is implemented. The 6-sided dice is used to reduce the strategic lying that can potentially exist in the two-state setting (Gneezy, 2005). 6 studies show that the elicitation (i.e., strategy versus direct) method has limited impact on people’s behavior, especially in low complexity settings, which is the case in our non-strategic version of the sender receiver game (see Bosch-Domnech and Silvestre, 2005; Brandts and Charness, 2000; Cason and Mui, 1998; Falk and Kosfeld, 2003; Oxoby and McLeish, 2004). Also, we consider four payoff allocations instead of two, which allows us to investigate not only whether subjects lie or tell the truth but also the types of lies subjects choose to tell. In our design, the combination of four possible true states and the four final payoff allocations allow us to classify the type of lies not only according to the gains and losses incurred by both the sender and the receiver but also according to the fairness of the final allocation. In particular, we classify lies as: a selfish black unfair (fair) lie if it increases a player’s payoff at the expense of the other player, while implementing inequity (equity); an altruistic unfair (fair) lie if it decreases a player’s payoff, while increasing the other player’s payoff and creating inequity (equity); a Pareto white lie if it increases both players payoff; and a spiteful black lie if it decreases both players payoff. 3 3.1 Behavioral Predictions The intensity of lying Do subjects lie? How often do they lie? Do they lie more to friends or to strangers? We operationalize our predictions in terms of two approaches. First, there is the outcome oriented approach that assumes individuals care only about final outcomes. Second, there is the procedural/moral approach where individuals are assumed to care about the process through which outcomes are generated and, in particular, whether the path itself is consistent with their moral beliefs. If individuals focus merely on outcomes (outcome oriented subjects), their cost of lying is zero and we expect them to lie whenever they have an incentive to do so (this case corresponds to the economic types in Hurkens and Kartik (2009)). However, the incentives for lying may differ across individuals. Selfish agents who care only about their own monetary payoffs tell lies whenever it gives them a better outcome, regardless of the consequences for others. Also, pro-social agents are willing to tell a lie to implement an altruistic, more equal, or more efficient allocation, 7 depending on their social preferences.9 In our experiment, these types will lie three out of four times and we should observe no differences between treatments. The use of the strategy method, by eliciting a vector of messages for each individual, allows us to draw a clear prediction in those cases where people have preferences over payoff allocations. Under this assumption, within our experiment, the truth is incentive compatible only once - when it coincides with an individual’s most preferred allocation. Regardless of whether one is selfish or pro-social, everyone has an incentive to lie a maximum of three times to implement her preferred allocation. There should be no differences in the proportion of lies between the strangers and the friends treatments. Alternatively, consider that individuals have procedural and/or moral preferences. In this case, when deciding whether to tell a lie or tell the truth, individuals will judge the morality of their actions and act accordingly.10 In case the morality of lying is determined by its consequences, lying is right if and only if it leads to at least as much good as telling the truth. Consistent with our earlier discussion, we would expect that pro-social subjects will lie to implement their preferred “good” allocation. Selfish subjects, on the other hand, may refrain from telling a selfish black lie. However, given our four-outcome sender-receiver game, it does not mean that they will not lie at all. A selfish subject who cares about the consequences of lying can lie in a morally acceptable way, for instance, by implementing his second preferred choice.11 Therefore, similar to an outcome-preference, subjects in our experiment are expected to lie three times in both the strangers and friends treatments. In case subjects have a positive unconditional moral view against lying, they will trade off 9 Formally, pro-social behavior involves caring about the welfare and rights of others, feeling concern and empathy for them, and acting in ways that benefit others. 10 The philosophical underpinnings of our investigation can be traced back to the theory of Consequentialism that holds that the consequences of one’s conduct are the true basis for any judgment about the morality of that conduct. From a consequentialist’s standpoint, therefore, a morally right act is one that will produce a good outcome, or consequence. This view is often captured in the saying:“The ends justify the means”. Distinct from consequentialism is the idea of deontology that distinguishes the rightness or wrongness of one’s conduct from the nature of the behavior itself rather than the outcomes of the conduct. The differences in the two approaches lie more in the way moral dilemmas are approached than in the moral conclusions reached. As a practical example, a consequentialist may argue that lying is wrong because of the negative consequences produced by lying, though certain foreseeable consequences might make lying acceptable. A deontologist, on the other hand, might argue that lying is always wrong, regardless of any potential good that might come from lying. 11 This is in line with guilty aversion. Under guilty feeling individuals get disutility from hurting others. 8 the benefits from lying with the moral costs of doing so and act accordingly. If the cost is very high, as in case of extreme moral concerns, we expect these subjects to never lie. If, on the other hand, the costs are moderate, the corresponding subjects’ probabilities of lying will decrease with the ranking order of their true allocation. In other words, their probability of lying will increase with the net benefit of doing so.12 Moreover, if the moral principal of not lying is considered to be universal, and not selectively applied to people or acts, we should observe no differences between treatments. A less strict, pluralist, moral view assumes individuals have different duties among which fidelity (not lying, keeping promises), gratitude, and beneficence (do good to others) play important roles. A lie is morally wrong, but in case of conflict with some other duty (for instance, being fair to someone else), individuals may lie. Depending on how individuals judge their duties, we may observe individuals not lying at all, or doing so less than three times within the context of our experiments. Under this less strict morality view, differences may be found between friends and strangers treatments if the duty of gratitude for instance surpasses the duty of being honest.13,14 12 Under procedural moral preferences individuals may suffer a negative utility from the act of lying. Similarly, individuals may derive an extra utility for being honest. It is not our purpose in this paper to distinguish between these two preferences. 13 The moral unconsequentialist approach corresponds to the deontological approach in moral ethics field of philosophy. The first, more strict moral view corresponds to the absolute deontological moral system (see work of Emmanuel Kant), which is characterized by individuals’ adherence to independent moral duties, and the duty of honesty is primordial. The second, less strict moral view corresponds to the pluralist deontological system, which is characterized by a multiplicity of duties (see the work of W. Ross). Another ethical moral approach is virtue ethics. It emphasizes the moral character of the actor in contrast to duties or the consequences of actions. Under this approach is less clear in which cases lies are permissible. 14 Both consequentialism and utilitarianism are, however, silent about relational considerations. There is a general notion that certain relationships between people (for example, family, love, and friendship) engender ethical obligations. And we may strengthen them with the appropriate consequentialistic or utilitarian underpinnings. Relationships do not add anything new to these fundamental ways of thinking but, rather, in certain circumstances, reinforce their considerations. For the rule utilitarian moral types, lying to a friend is worse than lying to strangers, but friendship as such does not dominate over the duty of honesty. It merely reflects a moral consideration, which waxes and wanes depending on whom we are relating to. 9 3.2 The pattern of lies We expect that subjects will tell different lies to friends relative to strangers. One reason behind this prediction is the existence of other-regarding preferences (or other-regarding moral duties) and the extent to which those preferences may vary with friendship ties. In fact, extant experimental evidence indicates a more prosocial behavior towards friends than to strangers. For instance, Leider et al. (2009) show that, under anonymity, subjects give at least 50% more surplus to friends than to strangers. However, when decisions are non-anonymous, transfers increase an additional 24% to friends in games with efficient transfers. Their results suggest that it is not just the prospect of future interaction that is behind the more prosocial behavior towards friends but that people’s “baseline altruism” seems to be higher for friends as well.15 In our experiment, we can infer our subjects’ social preferences for friends and strangers by comparing their choices in the ranking game in both treatments. In Appendix B, we formally present predictions for the ranking game under inequity aversion and quasi-maximin preferences.16 Concerning the pattern of lies, assume, first, the case where subjects care only about final allocations. A selfish type, and someone who does not care sufficiently about the well-being of others, will always lie if the true allocation does not maximize her own earnings. Therefore, these selfish agents will lie whenever the truth differs from allocation C. If individuals have altruistic preferences, dislike inequality, or have concerns about social welfare, they will prefer allocation D, and they will lie in all other circumstances. In case individuals exhibit more pro-social behavior towards friends, we expect to observe more selfish black lies in the strangers treatment relative to the friends treatment. Second, if subjects have moral concerns and exhibit stronger moral duties to friends, we expect less selfish lies, in the friends treatment in particular. 15 Polzer et al. (2009) compare allocations to friends and strangers in an ultimatum game. They report that a friend in the role of a receiver demands significantly less to reach an agreement than a receiver stranger. Glaeser et al. (2000) match subjects at various social distances in a trust game. They find that closer social distance increase both trust and trustworthiness. Reuben and van Winden (2008) investigate the friendship effect on negative reciprocity and show that in a three-player power-to-take game friends are more likely to punish the proposer and more likely to coordinate their punishment. 16 Note that our non-anonymous friends treatment provides the total effect of “playing with a friend” i.e., the combination of reputation considerations and the potential increase in intrinsic social preferences. 10 Another explanation for the different pattern of lies across treatments may lie in individuals’ concerns for social esteem. While procedural-moral preferences may create an internal pressure in individuals for telling the truth, or only certain types of lies, the concern for social esteem, may work as an external motivator. In case individuals care about social esteem, they may suffer a non-pecuniary cost from criticism, ostracism from others, loss of friendship, and/or feelings of shame when they do not behave “properly” and such “inappropriateness” can be observed by others. In our experiment, subjects’ choices are unobservable by other subjects in both treatments. Nevertheless, concerns for social esteem may arise (in expectation) in the non-anonymous friends treatment relative to the anonymous stranger treatment. For one, subjects may talk about the experimental results, and their choices, once the experiment ends. Moreover, not only does anonymity vary between treatments but the relational ties between subjects also differ. And if subjects receive utility from what they think a “general other” thinks about them, they may get even more utility from their friends’ judgment of their behavior and/or character.17 4 Experimental procedures Our experimental sessions were conducted in the Vernon Smith Experimental Economics Laboratory at Purdue University during June, August, and September of 2010. We used the z-Tree software (see Fischbacher, 2007) modified appropriately for our purpose. Subjects were mainly undergraduates from disparate fields. On average, a session lasted 50 minutes and the participants earned, on average, $14 dollars. We conducted 6 sessions. Three of them comprised the Strangers treatment (80 subjects) and the remaining three sessions comprised the Friends treatment (68 subjects). For the Strangers sessions, subjects were recruited individually and, at the beginning of the experimental session, were randomly and anonymously matched with another subject and remained matched with this subject for the duration of the session. For the Friends sessions, we recruited pairs of students that had a friendship tie and each pair of friends remained together for the duration of the session. 17 For experimental studies on social esteem see Andreoni and Bernheim (2009), Cox and Deck (2005), Dana et al. (2006), Hoffman et al. (1996), and Tadelis (2008). 11 In all sessions, subjects’ participation comprised of two parts. Part I implemented the Ranking Choice condition and part II implemented the Message Condition. Given the non-strategic setting of both conditions, subjects were asked to make decisions for both part I and part II assuming a sender’s role. Subjects were informed that after they played part I and part II, half of the participants would be assigned the role of sender and, the other half, the role of receiver, and that only the decisions made by those in the role of a sender would be implemented. Subjects started the experiment with general on-screen instructions followed by instructions for part I. They also received a summary of the instructions on paper for part I (see Appendix A). To ensure the experiment was understood, subjects had to answer three quiz questions correctly before part I started. Thereafter, all subjects made their ranking decisions for part I. When part I was over and before learning about their earnings for this part, everyone received on-screen instructions for part II, as well as a summary of the instructions on paper (see Appendix A). Part II started after everyone answered three quiz questions correctly. All subjects then made decisions for part II. Recall that subjects had to choose which message to send for every potential true state before knowing the actual truth. In particular, each subject had to state which message she wanted to send to the receiver for each possible true state - A, B, C, D - each one corresponding to a payoff allocation (see Table 1). The subject could either lie or tell the truth. The other person was never informed as to whether the sender is telling the truth or lying. When everyone had made their decisions, subjects were informed about the actual true state. At the end of part II, subjects learned their role (sender or receiver) in the whole experiment. Subjects who were selected to be senders had their decisions for part I and part II implemented. In particular, if a subject was selected to be a sender, her earnings, as well as the other’s person earnings, were determined by her decisions; if the subject was selected to be a receiver, her earnings, as well as those of the other parties’ earnings were determined by the other parties’ (sender) decisions. At the end of the experiment, after roles were revealed, the experimenter rolled two 10-sided dice in front of each sender to select his/her earnings for part I in the following way. If the dice roll turned out to be less than or equal to 50, the sender’s first option was implemented; if the dice roll twas higher than 50 but less or equal to 75 the sender’s second option was implemented; if the dice rolled was higher 12 than 75 but less than or equal to 90, the sender’s third option was implemented; if the dice roll was higher than 90, the sender’s fourth option was implemented. The receiver was only informed about his/her earnings for part I and never informed about the sender’s ranking. For part II, the receiver never observed the vector of the sender’s messages but only the message corresponding to the actual truth and its corresponding payoff. At the end of the experimental session, subjects learned of their payoffs for parts I and II. No subject was ever informed about the choices of subjects in other groups. Next, each participant learned of his/her own earnings in dollars, filled a background questionnaire, and was individually, and privately, paid. 5 5.1 Empirical findings The intensity of lying The proportion of lies observed in both treatments is provided in Figure 1. In the strangers treatment, there are 144 (47.4%) lies among a total of 304 messages. In the friends treatment, the total number of lies were 90 (33.1%) out of a total of 272 messages. As can be seen in figure 1, the proportion of lies in both treatments is significantly below 75% (also confirmed by a one-sided Binomial test, 𝑝 = 0.001). Therefore, individuals tell, on average, fewer than three lies, which indicates that, on aggregate, individuals do not behave as standard economic agents or as if they have exclusively outcome-oriented social preferences. Individuals seem to dislike lying, independent of the consequences of the act. On average, however, our univariate results reveal a degree of lying aversion, that is stronger for friends than it is for strangers. The difference between the proportion of lies in both treatments is statistically significant (one-sided binomial test; 𝑧 = 1.74, 𝑝 < 0.05). To further explore this result, we conduct a regression analysis of the likelihood of lying. Specifically, Model I provides the effects of the treatment dummy variable friends. Model II adds dummies for each possible true state (A being the excluded category), and the interaction terms between the true state and the friends dummy as controls. To account for the panel structure in our data (four messages for each subject) we estimate a random effects probit model. 13 Figure 1 % PROPORTION OF LIES BY TREATMENT 70 60 50 40 30 20 10 0 strangers friends Table 2 presents the results. First, our results confirm those obtained with the binomial test: subjects in the friends treatment are less likely to lie than those in the strangers treatment (Model I, 𝑝 = 0.004). Also, when the true outcome is A, our results show that subjects do not lie significantly more in the friends treatment relative to the strangers treatment. However, the probability of lying decreases significantly in the friends treatment as compared to the strangers treatment when the true state is D rather than A. In the strangers treatment, the probability of lying increases if the true state is B instead of A and decreases if the true is C instead of A. The same happens in the friends treatment although the differences between treatments are not statistically significant.18 18 Background variables, such as gender and race are insignificant and hardly affect the other coefficient estimates. We therefore provide a simpler model specification. 14 Table 2 RANDOM EFFECTS PROBIT REGRESSION WITH LYING AS DEPENDENT VARIABLE constant friends B C D friends*B friends*C friends*D Coef. −0.081 −0.447∗∗∗ − − − − − − Model I Std. Err. 0.102 0.153 − − − − − − Coef. 0.112 −0.328 0.650∗∗∗ −0.673∗∗∗ −0.771∗∗∗ −0.323 0.218 −1.556∗∗∗ Model II Std. Err. 0.192 0.286 0.239 0.228 0.234 0.349 0.346 0.481 *** Indicates significance at the 1%-level. There are 𝑁 = 576 observations in total, with 144 individuals and 4 observations per individual. The Wald statistic equals 𝜒2 = 8.52; 𝑝 = 0.0035 in Model I and 𝜒2 = 76.28; 𝑝 = 0.0000 in Model II. The emergent aggregate picture presented above hides individual behavior and possible heterogeneity. Not all individuals display lying aversion and some individuals are willing to lie whenever the true allocation differs from their preferred one. Table 3 shows the frequency of lies. Despite a considerable portion of subjects appearing to behave as per the dictates of standard economic theory, about 33% (29%) of individuals lie three times in the strangers (friends) treatment. These percentages are significantly distinct from 100% (one-sided Binomial test, 𝑝 < 0.0014). The majority of subjects display a certain degree of lying aversion. For instance, in the strangers (friends) treatment, 65% (71%) of the subjects lied less than three times. A chi-square test reveals that there are significant differences in the frequency distribution of the number of lies told between the strangers and friends treatments (𝑝 < 0.001). The difference between treatments increases in particular for those who never lie. In the strangers treatment, 15% of the subjects never lie. A considerably larger proportion of those “moral types” is found in the friends treatment. For example, about 40% of individuals never lie to a friend (one-sided Binomial test, 𝑝 = 0.004). 15 Table 3 FREQUENCY OF LIES BY TREATMENT Strangers N=76 Friends N=68 Never Once Twice 11 14.5% 27 39.7% 15 19.7% 12 17.6% 23 30.3% 9 13.2% Three times 25 32.9% 20 29.4% Always 2 2.6% 0 0% The dispersion in the frequency distribution of the number of lies shows that individuals are heterogeneous. In one extreme, those with a low cost of lying, lie whenever the true outcome differs from their first ranked preference. At the other extreme, moral individuals with a high cost of lying, never lie. In between, there are those individuals whose gains from lying increase if the true outcome is distanced further from their preferred choice. The data appears to support this contention. The correlation between ranking preferences, and the frequency of lies, is high for those who lie once or twice (the intermediate liars; see Table C1, Appendix C). Next, we investigate the relationship between lying aversion and social preferences. First, in order to consider social preferences, we classify subjects according to their first ranked choice in the ranking game.19 We expect the following. If individuals are selfish, or they attribute a low weight to others’ payoffs, they would rank C (30, 15) as their first choice; alternatively, if individuals are sufficiently inequity averse, and/or care about total surplus, they would rank D (25, 25) as their first choice. Pure altruistic individuals would choose B (15,30) as their preferred allocation. Table 4 presents the proportion of subjects who chose a particular allocation as their most preferred option in the ranking game. In the strangers treatment, there are 47% subjects that prefer the selfish allocation C and 43% that prefer the fair allocation D. The percentage of subjects that prefer the allocation D in the friends treatment is higher and equals 78% and relatively few subjects show selfish preferences towards a friend (6%). Also, to analyze lying aversion, we present, for 19 In Appendix A we present the full ranking predictions for inequity aversion preferences (Fehr and Schmidt, 1999) and Quasi-maximin preferences (Charness and Rabin, 2002). Table C3 in Appendix C presents the distribution of allocations’ choice by ranking preference. 16 each group of subjects, the proportion of lies told in relation to the number of lies that subjects would have told if they had lied whenever they had an incentive for doing so, i.e., three times. Independently of any social type, the proportion of lies is lower than 1, and smaller in the friends treatment, as compared to the 𝑠𝑡𝑟𝑎𝑛𝑔𝑒𝑟𝑠 treatment. Moreover, fair-minded subjects appear to lie less than the selfish types. We explore this finding further in Section 6.2 when considering a within-subject experimental design. Table 4 PROPORTION OF SUBJECTS AND LIES (IN RELATION TO THE INCENTIVE COMPATIBLE LIES) BY SUBJECTS’ MOST PREFERRED OPTION Strangers Friends Subjects (N=76) Lies∗ (𝑁 = 144) Subjects (N=68) Lies∗ (𝑁 = 90) A (20,20) 0.039 (3) 0.33 (3) 0.132 (9) 0.22 (6) B (15,30) 0.053 (4) 0.83 (10) 0.029 (2) 0.33 (2) C (30,15) 0.474 (36) 0.67 (70) 0.059 (4) 0.58 (7) D (25,25) 0.434 (33) 0.59 (59) 0.779 (53) 0.47 (75) * The proportion of lies is computed with respect to the number of lies that would have been told if subjects would have lied three times. Lies proportions can be compared to 1. 5.2 The pattern of lies To understand individuals’ motivations for lying we investigate their pattern of lies. In particular, we examine the messages sent by those who lied.Table 5 provides the results. As compared to strangers, friends are more likely to lie for a fair outcome while they are less likely to lie for their own gains if they come at the cost of their friends’ loses. In particular, a significantly higher proportion (44%) of lies in the strangers treatment involve switching to message C, the selfish allocation (30, 15). A significantly smaller fraction (7%) of lies involve switching to the same message in the friends treatment (one-sided Binomial test, < 0.001). In contrast to this finding, we show that there are 80% of lies in the friends treatment that implement the fair allocation (25, 25) – a percentage that is significantly higher than the 44% observed in the strangers treatment (one-sided Binomial test, 𝑝 < 0.001). 17 Table 5 UNCONDITIONAL MESSAGES SENT BY LIARS Strangers Number A of lies (20,20) 144 7 (4.9%) B (15,30) 10 (6.9%) C (30,15) 63 (43.8%) D (25,25) 64 (44.4%) Friends 90 5 (2.6%) 6 (6.7%) 72 (80.0%) 7 (7.7%) In order to further investigate the pattern of lies observed in our experiment, we adopt the Erat and Gneezy (2009) approach and classify lies according to the gains and losses for both the sender and receiver that results, within our experiment, in the sender choosing an allocation that is different from the truthful one. Recall that in our sender-receiver game we have four possible true states and four possible final allocations. As such, we may have one type of lie associated with a certain level of gains and losses resulting from different combinations of true outcome and the corresponding message sent. For example, a lie that results in a loss of 5 for the sender and a gain of 10 to the receiver can result, within our experimental design, in a truth state of A, (20, 20), and an actual message sent equal to B, (15, 30), as well as from a true state equal to C, (30, 15), when the actual message sent happens to be equal to D (25, 25). Given this, we classify lies not only according to gains and losses but also according to the fairness of the final outcome given the true allocation. Specifically, a fair (unfair) lie moves a sender and receiver from a state of unequal (equal) outcome to a state of equal (unequal) outcome for both. Table 6 presents the fraction of lies per type of lie for both treatments.20 The pattern of lies told by subjects is significantly different between treatments (𝜒2 test, 𝑝 < 0.001). For instance, there is a significantly lower proportion of altruistic lies in the strangers treatment as compared to the friends treatment (20% vs. 29%, 𝑧 = −1.320, 𝑝 = 0.094). More specifically, individuals are willing to forgo 5 experimental units in order to increase the others payoffs by 10 experimental units. This implies that individuals do care about the others’ payoffs and that they are willing to lie when lying implements a relatively equal allocation. 20 In the Appendix C, Table C2 shows the proportions of messages sent by true state and treatment. The diagonal shows the proportion of subjects that told the truth for each true state. 18 When the true allocation is A, (20, 20), individuals can tell a Pareto white lie by sending message D, (25, 25), yielding each participant 5 extra experimental units. In the strangers treatment, 25% of the lies resulted in a Pareto improvement, while this percentage equals to 34% in the friends treatment (𝑧 = 1.1630, 𝑝 = 0.122).21 A larger proportion of lies told in both the strangers and friends treatments was of the selfish kind since they increase the sender’s payoff at the expense of the receiver’s. The proportion of selfish lies was 44% in the friends treatment, which is significantly smaller than the 67% in the corresponding strangers treatment (𝑧 = 2.6128, 𝑝 = 0.005). However, not all of the selfish lies should be considered equally selfish and the fairness of the final allocation should also be considered. From all selfish lies in the strangers treatment, 45% implemented an unequal allocation that favored the sender while only 22% implemented a fair allocation. In the friends treatment, however, only 7% of the selfish lies could be considered unfair, while 38% implemented an equal allocation. Table 6 PROPORTION OF LIES PER TYPE OF LIE BY TREATMENT Altruistic lie Selfish lie Fairness of outcome Gains/Losses True [sender,receiver] allocation Final allocation unfair fair unfair fair fair unfair fair unfair fair fair [-5,10] B(15,30) D(25,25) B(15,30) A(20,20) B(15,30) C(30,15) A(20,20) C(30,15) D(25,25) C(30,15) D(25,25) A(20,20) Pareto white lie Spite black lie A(20,20) C(30,15) D(25,25) C(30,15) C(30,15) D(25,25) B(15,30) A(20,20) B(15,30) B(15,30) A(20,20) D(25,25) [-10,5] [-15,15] [5,-10] [10,-5] [15,-15] [5,5] [-5,-5] Strangers Robust (144 lies) 0.7% 11.8% 1.4% 0.7% 4.9% 13.9% 3.5% 14.6% 18.8% 16.0% 13.2% 0.7% Friends Robust (90 lies) 3.3% 21.1% 1.1% 2.2% 1.1% 0.0% 4.4% 4.4% 33.3% 2.2% 25.6% 1.1% Next, we investigate whether different lies can be explained by the differences in social preferences. Figure 2 shows the proportion of subjects that are classified as selfish, inequity averse, and altruistic, according to their ranking preferences. 21 See Table C1 in Appendix C). 19 Figure 2 also presents the proportion of subjects who tell the truth for allocations C, D, and B, the average proportion of subjects who tell a lie in order to implement allocations C, D, and B22 , and the proportion of subjects who never lie. Figure 2 PROPORTION OF LIES BY TREATMENT 100 90 % of subjects 80 70 60 50 40 30 Strangers 20 Friends 10 0 As stated before (see Table 4), there are more selfish types in the strangers treatment and more inequity averse subjects in the friends treatment. Therefore, a part of the truth-telling behavior is explained by social preferences. However, more people appear to stick to the truth relative to those who have an incentive to do so. We highlight two additional observations. First, there are very few subjects who rank B as their first choice but, by the same token, a considerable fraction of subjects also do not lie when B happens to be the true allocation (28% and 47% in the strangers and friends treatments, respectively (𝑧 = −2.422, 𝑝 = 0.008). Discounting those who never lie (15% and 40% in the strangers and friends treatments), it remains that 13% of the subjects in the strangers treatment, and 7% of the subjects in the friends treatment who could have lied chose to not do so. Therefore, there are subjects who do not lie if this lie happens to reduce the other person’s payoff. A second interesting finding relates to those who choose to stay with the truth when it equals C. Subjects seemed to prefer fair allocations when they played with a friend. However, a majority also did not lie when the unfair allocation, C, happened 22 In case of a lie, for each allocation, C, D, and B, we average the number of subjects that lie for each of the other three possible allocations. 20 to be the true allocation. For a majority, the duty of not lying seems to be more important than their perceived duty for being fair. Additionally, there appear to be no significant differences between treatments. When the true outcome was C, (30, 15), there was no significant difference between strangers telling the truth and friends telling the truth (67% vs. 68%, 𝑧 = −0.064,𝑝 = 0.475). However, there was a significant difference between strangers having an incentive to tell a lie and friends having an incentive to tell a lie (49% vs. 91%, 𝑧 = −5.494, 𝑝 < 0.001. See Table C4 in Appendix C). Thus, the truth-telling behavior with respect to C is easily understandable in the strangers treatment. Subjects tell the truth because it is incentive compatible and the remaining subjects are basically those who never lie. That is, however, not the case for friends. Only 9% of subjects in the friends treatment ranked C as their first option but 68% also did not lie when C was the truth. Excluding those who never lied, there are still approximately 30% of subjects who chose to tell the truth when they could have, in fact, lied. By examining Table C1 in Appendix C we see that when A or D is the true outcome, the proportion of subjects who chose to tell the truth in the friends treatment is explained by those that have an incentive to not lie plus those who never lie. This truth-telling behavior with respect to the true state C is, therefore, surprising.23 6 Robustness We find significant differences between the friends and the strangers treatments regarding subjects’ truth-telling and lying behavior. We believe that such differences are attributable to the fact that individuals may feel different moral obligations towards friends relative to strangers.24 However, we may question whether subjects in both the strangers and the friends treatments are representative of the same population. For example, it may be argued that subjects coming with a friend to the experiment may be intrinsically more sociable than those coming alone to the experiment. Put differently, is there a selection bias with those who come 23 It is possible that subjects could be embarrassed about looking selfish by revealing that they prefer an unfair allocation. Therefore, while they do not explicitly lie to implement it, they are also not willing to deviate from the truth in order to get it. In other words, lying is used as a cover to justify, and obtain, a better outcome. 24 However, as stated earlier, we cannot exclude that individuals playing with friends could bring inside the lab and to the one shot-game the reputation concerns they care about outside the lab. 21 with a friend relative to those who do not? To address this issue, we implemented additional sessions in which subjects were recruited to come along with a friend but participated sequentially in the strangers and friends treatments. More specifically, at the beginning of the experiment, each subject was randomly and anonymously paired with another subject who was not his/her friend and played both the ranking and the modified sender-receiver game as described in Section 2. Once the strangers treatment ended, however, in a surprising move, subjects were informed that they were going to play both the ranking and the sender-receiver game again, but this time with their respective friends. We refer to the additional within-subject strangers and friends treatments as strangers robust and friends robust, respectively. For these additional treatments, we conducted four extra sessions, with 78 participants in total. Like in the strangers and friends treatments, participation was restricted to one session and we ensured that these subjects had not participated in any of the previous sessions. The plan for this section is as follows. First, we investigate whether sample selection explains our results. After that, we use the within-subject nature of our robust treatments to further explore individual lying behavior with respect to friendship. 6.1 Sample selection bias The percentage of lies in the strangers robust (friends robust) treatment equals 46% (34%). A one-sided binomial test on the equality of proportions shows no statistically significant difference at the 1% level between this proportion and the one found in the earlier strangers (friends) treatment. We conclude similarly when we incorporate the data from the strangers robust treatment into the regression Model I of Table 2. In results presented in Table 7 (Model I), the regression intercept for the strangers robust treatment is seen to be insignificant. Moreover, using the data from the strangers robust treatment, instead of the strangers treatment, we get a statistically significant coefficient for the friends dummy equal to −0.42. Hence, the difference in the proportion of lies between the strangers and friends treatments is of the same magnitude as the difference in the proportions of the strangers robust and 22 the friends treatments (see Model II, Table 7)25 . Model III presents the estimates for the pooled data of the strangers robust and the strangers treatments. Table 7 RANDOM EFFECTS PROBIT REGRESSION WITH LYING AS DEPENDENT VARIABLE constant friends strangers robust Model I Coef. −0.079 −0.438∗∗∗ −0.036 (N=888) Std. Err. 0.098 0.147 0.139 Model II Coef. −0.123 −0.421∗∗∗ − (N=584) Std. Err. 0.107 0.160 − Model III Coef. −0.098 −0.420∗∗∗ − (N=888) Std. Err. 0.069 0.130 − *** Indicates significance at the 1%-level.* Indicates significance at the 10%-level. Also note that the constant term proxies for strangers in the regressions. There are 𝑁 = 888 observations in total, with 222 individuals and 4 observations per individual in Model I and III, 𝑁 = 584 observations in total, with 144 individuals and 4 observations per individual in Model II. The Wald statistic equals 𝜒2 = 10.57, 𝑝 = 0.005 in Model I, 𝜒2 = 76.28, 𝑝 = 0.000 in Model II, and 𝜒2 = 10.51, 𝑝 = 0.001 in Model III. Not only is the proportion of lies similar in both the strangers and the strangers robust treatments, but also the frequency of lies in both treatments follows the same pattern. Table 8 reports the frequency of lies for both the strangers robust and the friends robust treatments. Compared to the results for the strangers treatment in Table 3, a chi-square test of the equality of distributions shows no statistical significance (𝑝 = 0.49). Concerning those who never lie, there is a higher proportion in the strangers robust treatment (19.2%) relative to the proportion observed in the strangers treatment (14.5%). However, a one-sided binomial test still shows a statistically significant difference at the 1% level between the proportions of those who never lie in the strangers robust and the friends treatments. Table 8 FREQUENCY OF LIES BY TREATMENT Strangers robust N=78 Friends robust N=78 Never Once Twice 15 19.2% 32 41.0% 11 14.1% 11 14.1% 26 33.3% 10 12.8% 25 Three times 23 29.5% 24 30.8% Always 3 3.8% 1 1.3% We do not consider the data from the friends robust treatment in the regressions because observations are not indepedendent from the strangers robust treatment 23 Related to the pattern of lies, we find a similar pattern in both the strangers robust (see Table C5 in Appendix C) and the strangers treatments (see Table 4). A chi-square test reveals no statistical significance (𝑝 = 0.27). More specifically, comparing the messages sent in both the strangers and the strangers robust treatments, we see that the proportion of messages that implement an equal allocation, i.e., messages A and D, are relatively the same. There is a smaller (higher) proportion of messages that provides a higher (lower) payoff to the sender relative to the receiver in the strangers robust treatment. However, compared to the proportion of liars for each possible message in both the strangers robust and the friends treatments, we get the same results as before (see table 3) [i.e., they are statistically similar as revealed by a one-sided binomial test]. We reach the same conclusion when we consider the type of lies according to our classification. Comparing tables 6 and C6 in Appendix C, we see no significant differences between the distribution of lies between the strangers and the strangers robust treatments (𝜒2 test, 𝑝 = 0.78), but a significant difference between the friends and the strangers robust treatments (𝜒2 test, 𝑝 < 0.001). In sum, we do not see any evidence of sample selection bias with our robustness checks. 6.2 Individual lying behavior and friendship In this section, we explore individual lying behavior and friendship in more detail by comparing the within-subject behavior in the strangers robust and friends robust treatments. We generally classify subjects into two types based on the effect of friendship on subjects’ lying/truth-telling behavior: those whose behavior remains the same regardless of who they are playing with (the constant types) and the switchers who change their behavior as a function of who they are playing with (friends versus strangers). As seen in Figure 3, 26% of individuals choose to lie to a stranger while always telling the truth to a friend. This result is consistent with some individuals having an intermediate cost of lying that increases if they interact with a friend instead of a stranger. A majority of subjects, however, seem to behave similarly towards a friend or a stranger regarding their truth-telling behavior. For 24 instance, there are 15% of the subjects who never lie to either a stranger or a friend.26 By the same token, 55% of individuals lie to both a stranger and a friend. Notice that this group includes those subjects who have a sufficiently low cost of lying when interacting with friends as well as the economic types for whom it is irrelevant who they lie to. Figure 3 CLASSIFICATION OF SUBJECTS ACCORDING TO WHOM THEY TELL A LIE/TRUTH 3.8% 15.4% constant truth-teller 25.6% constant liar lie to a stranger but not to a friend lie to a friend but not to a stranger 55.2% We see above that while a majority of subjects lie to both a friend and a stranger, it is the frequency, and the pattern of lying, that are affected by friendship ties. In Figure 4, we strengthen those findings by presenting the proportion of subjects grouped by the number of lies told to both a stranger and a friend. The diagonal represents the subjects who told exactly the same number of lies to both a stranger and a friend. From the figure we see that 36% (15% + 21%) of the subjects tell exactly zero or three lies in both treatments. However, the majority of subjects tell a different proportion of lies to a stranger relative to a friend. For instance, 40% lie more frequently to a stranger and 12% lie more frequently to a friend. (Table C7 in Appendix C shows the exact proportions of subjects for each possible combination of lies told to both a stranger and a friend). 26 At first blush, it appears that these constant truth-tellers may have a high cost of lying. However, further thinking reveals that this group contains both those who have a high cost of lying when interacting with friends and those whose moral concerns are independent of who they are interacting with. 25 Figure 4 PROPORTION OF SUBJECTS RELATIVE TO THE NUMBER OF LIES TOLD TO BOTH A STRANGER AND A FRIEND Number of lies told (friend) 4 0.01 0.12 3 0.21 2 0.08 0.4 1 0.04 0.15 1 2 3 4 Number of lies told (stranger) The proportion of lies told to a stranger and a friend differs because the gains from lying may differ for strangers and friends and/or the costs from lying may depend on social ties. Figure 5 allows us to examine subjects’ lying behavior towards a stranger and a friend while keeping the benefits of lying relatively similar.27 Specifically, on the y-axis we depict the most preferred allocation in the friends robust treatment and, on the x-axis, the most preferred allocation in the strangers robust treatment. And each dot on the diagonal represents the combination of subjects’ first preferred allocation in the strangers robust and the friends robust treatments. For each dot, we show: 1) the percentage of subjects who have that particular combination of first preferred payoff allocations; 2) the actual number of lies, as a fraction of the number of incentive compatible lies, subjects would have told to strangers; 3) the actual number of lies, as a fraction of the number of incentive compatible lies, subjects would have told to friends.28 For instance, consider the 27 Even though some subjects have similar preferences for friend and strangers the utility function may still differ. For example, a subject may have selfish preferences towards a stranger and inequity aversion preferences of Fehr and Schmidt type with a small 𝛽, implying that C is the most preferred allocation for both a stranger and a friend, but the gains from choosing C will be smaller for a friend than for a stranger (see function B1, Appendix B). 28 Recall that incentive compatible lying implies that subjects implement their preferred allocation regardless of their social preference. Additionally, note that in the case of subjects lying always, this fraction would be greater than 1. However, in our experiment, this case occurred only once. 26 diagonal that highlights the proportion of subjects who have a similar incentive to lie to a stranger and a friend (in addition to the proportion of lies told to both a stranger and a friend). The cost of lying appears to be higher with friends than strangers. For those subjects who prefer the allocation D (25, 25), the proportion of incentive compatible lies is 0.52 and 0.42 with a stranger and friend, respectively. Similarly, for those who prefer allocation C (30, 15), the proportion of incentive compatible lies is 0.80 for strangers and 0.47 for friends. Figure 5 PROPORTION OF SUBJECTS, PROPORTION OF LIES TOLD TO A STRANGER, AND PROPORTION OF LIES TOLD TO A FRIEND BY SUBJECTS’ PREFERRED ALLOCATION IN BOTH TREATMENTS most preferred D allocation (friend robust) (0.038, 0.33, 0.11) (0.013, 1, 1) (0.269, 0.65, 0.49) (0.474, 0.52, 0.42) (0.013, 1.33, 0.67) C (0.013, 1, 1) (0.128, 0.8, 0.47) B (0.013, 0, 0) (0.013, 0.67, 0) A (0.026, 1, 1) A B C D most preferred allocation (stranger robust) Figure 5 also reveals a relationship between social preferences and deceptive behavior. In particular, when subjects interact with a stranger, their costs of lying seem to increase with their other-regarding preferences. More precisely, the costs are low if subjects are selfish with both strangers and friends (i.e., they prefer allocation C in both treatments). By the same token, the costs are higher if subjects are pro-social towards friends and selfish towards strangers (i.e., they prefer D when interacting with a friend and C when interacting with a stranger). Finally, costs are at their highest when subjects are pro-social towards both friends and strangers (i.e., they prefer D in both treatments). The proportion of incentive compatible lies told to a stranger for the three pro-social types referred to above is 0.8, 0.65, and 0.52, respectively. Nevertheless, the deceptive behavior displayed by subjects 27 when interacting with a friend appears to be independent of individuals’ social preferences. The proportion of incentive compatible lies told to a friend for the three pro-social types referred to above is 0.47, 0.49, and 0.42, respectively. Therefore, it is interesting to note that the deceptive behavior of selfish individuals mimics those with outcome-oriented social preferences only when subjects play with their friends (0.47 is not statistical significant different from 0.52). The individual pattern of lies also differs across subjects types- those who lie only to strangers, only to friends, and those who lie both to strangers and to friends. First, we examine the messages sent by those who lied. Table 9 provides the results by comparing the messages sent by the “two switcher types” and the unconditional liars. Table 9 UNCONDITIONAL MESSAGES SENT BY LIARS N. of lies Switch behavior Constant liars Lie only to a stranger Lie only to a friend strangers robust friends robust A (20,20) B (15,30) C (30,15) D (25,25) 36 2 (5.6%) 7 (19.4%) 9 (25.0%) 18 (50%) 7 0 (7.7%) 0 (2.6%) 0 (6.7%) 7 (80.0%) 108 5 (4.6%) 8 (7.4%) 44 (40.7%) 51 (47.2%) 100 7 (7.0%) 8 (8.0%) 21 (21.0%) 64 (64.0%) From the table, we see that those who lied only to a friend did so in order to implement the fair and more efficient allocation D (25, 25). For those who lied only to strangers, 50% and 25% of their lies involved switching to allocation D and C respectively. Among the unconditional liars, the majority of their lies involved switching either to allocation C or D. The distribution of these two types of lies is fairly similar in those cases where subjects interacted with strangers. However, the majority of lies implied switching to allocation D in case subjects interacted with a friend. Further, consider the fraction of lies (per type of lie) told by subjects to a stranger and/or to a friend (see Table C6, Appendix C). A chi-square test of the equality of distributions shows significant difference at the 1% level. Specifically, our results show that there is a significantly lower proportion (12%) of altruistic 28 fair liars when subjects play with a stranger as compared to 22% (𝑝 < 0.001) when playing with a friend. Overall, subjects also tell more selfish lies to strangers than to friends (60% vs. 45%, 𝑝 = 0.007). In particular they tell more selfish and unfair lies (defined earlier) to a stranger (24%) relative to a friend (8%). Subjects also tell more Pareto improving white lies to friends than to strangers (23% vs. 17%). A one-sided binomial test shows that of all the above differences in proportions are significant at the 5% level. 7 Conclusion In this study, we use a modified sender-receiver game - the message game - to investigate the interaction between social ties and deceptive behavior and, in particular, how social ties influence lying behavior. To do so, we compare a treatment where each subject plays with another anonymous player, with a second treatment where subjects play with a friend. Additionally, we extend the existing structure of the message game by recording subjects’ messages corresponding to each potential true state. This allows us to investigate the frequency of lying and to draw inferences about the existence of different degrees of lying aversion. Third, in our experimental design, subjects are allowed to choose among different types of lies, which allow us the flexibility of studying different patterns of lies told to both friends and strangers. We are also able to explore the relationship between lying aversion, the type of lies told, and subjects’ social preferences. This is possible within our design by comparing the subjects’ revealed choices in the message game with choices made in the ranking game, in which they are required to rank, in an incentivized way, four sets of payoffs both for themselves and the player they happen to be matched with. Our results suggest that individuals care not only about outcomes but also appear to display procedural/moral preferences. In particular, individuals do not lie merely for the sake of lying. Their moral concerns, and the respective truth-telling behavior, are conditional on who they happen to be interacting with. A friendship tie seems to increase the moral cost of lying and strengthen individuals’ preferences for telling the truth. Our findings also confirm the existence of heterogeneity in individuals’ other-regarding preferences in that we find a positive relationship between social ties and social preferences. More pro-social individuals are less likely 29 to lie. Regardless of whom they interact with, a similar result obtains even if they are non pro social but happen to be playing with friends. Friendship also influences the type of lies individuals choose to tell. When choosing to lie, individuals not only take into account the personal benefits he/she will get from lying but also weigh the costs imposed on the other person he/she happens to be paired with. In particular, he/she takes into consideration the overall fairness of the final outcome. Individuals tell more selfish unfair lies to strangers and more selfish fair lies to friends. Also, individuals choose to tell more altruistic lies to friends relative to strangers. To ensure that our findings are not driven by any inherent sample selection bias, we conduct additional robustness sessions were subjects were required to bring a friend but played, both the ranking and message games, first with an anonymous player and then with the friend they brought along. These results show that sample selection is not an issue and actually serve to strengthen our findings and the resultant conclusions. An implication of our findings is as follows. As is well accepted, information transmission is crucial for the well functioning of decentralized markets and hierarchical corporate entities, such as firms. The existence of private information and the incentive for individuals to lie or to hide the truth in their own interest, often imply the use of mechanisms that make the truth incentive compatible and agents’ incentives aligned. For example, relatively low tax rates, combined with high penalties if caught, serve to reduce individuals’desires to cheat on their taxes and create an equilibrium of truthful declaration of income/profits. However, such an equilibrium has inherent disadvantages as well - like the collection of lower tax revenues. The same holds, for instance, in an employer-worker setting, where the employer must infer the worker’s unobservable actions from observing the division’s profits. Merely, asking the worker about his effort is considered to be cheap talk, adds no informational value to the employer’s performance appraisal, and calls, for instance, for an appropriate incentive-lader payment. Our findings underscore the fact that if workers have an intrinsic cost for lying, setting up of a feedback ”cheap” talk network could serve to design more efficient incentive compatible contract mechanisms. 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Economic Journal, 119(534):47–60. Tadelis, S. (2008). The power of shame and the rationality of trust. 33 Appendix A Summary of instructions(Friends treatment) Thank you for participating in this experiment. During the experiment your earnings will be calculated in points. At the end of the experiment these points will be converted into dollars at the rate of: 1 point = 0.3 dollars. At the end of the experiment your overall earnings will be exchanged into dollars, and you will be paid individually and privately in cash. You are not allowed to do anything else not related to the experiment. Please do not talk with anyone else. You will be matched with your friend who comes along with you. You are going to play two independent parts. In each part, you are going to make decisions that determine your and your friend’s earnings. More specifically, first you will get instructions for part 1 followed by three quiz questions to check your understanding of the instructions and then you make your decisions for part 1. Quiz questions do not affect your payment. Second, you will get instructions for part 2 followed by three quiz questions and then you will make your decisions for part 2. After you make decisions for both part 1 and part 2, for each pair, one player will be randomly selected to be a sender and the other to be a receiver. Everyone may be selected to be a sender (receiver) with 50% chance. The sender’s decisions for both part 1 and part 2 will be implemented. In particular, if you are the one selected to be a sender, your earnings and your friend’s earnings are determined by your decisions; if you are selected to be a receiver, your earnings and your friend’s earnings are determined by your friend’s decisions. Please note that all information that you receive from us is for your private use. Again, you are not allowed to communicate with other participants during the experiment. If you have a question, please raise your hand and one of the experimenters will come to you to answer your question. INSTRUCTIONS TO PART 1 You will observe four possible payoff options for you and your friend you are matched with. In particular, you will observe the following table: Option A B C D Your earnings (points) 20 15 30 25 Your friend’s earnings (points) 20 30 15 25 You will be asked to fill in the following: My My My My FIRST preferred option is: (50% chance of being implemented) SECOND preferred option is: (25% chance of being implemented) THIRD preferred option is: (15% chance of being implemented) FOURTH preferred option is: (10% chance of being implemented) Your friend you are matched with will NOT observe your ranking options. (You will 34 NOT observe your friend’s choices as well). At the end of the experiment everyone will have 50% chance of being selected as a sender. If you are selected to be a sender, the earnings for you and your friend in part 1 are determined by your decisions in the following way: there will be a 50% chance that you (and your friend) will be paid according to your first ranked option; 25% chance that you (and your friend) will be paid according to your second ranked option; 15% chance that you (and your friend) will be paid according to your third ranked option; 10% chance that you (and your friend) will be paid according to your fourth ranked option. In particular, at the end of the experiment, we are going to roll dice to determine the option to be implemented in front of you. The result of dice roll could be any integer number 1 to 100, such as 1, 2, 3, 4, ...100. If the result of dice roll is lower than or equal to 50, your first option will be implemented. If dice roll turns out to be higher than 50 but lower than or equal to 75, your second preferred option will be implemented; if the number of dice roll is higher than 75 but lower than or equal to 90, your third preferred option will be implemented; if the number is higher than 90, your fourth preferred option will be implemented. INSTRUCTIONS TO PART 2 PART 2 is independent and not related to PART 1. In part 2 you will observe again the four possible payoff options for you and your friend you are matched with. For each person the computer will generate a roll of a 4-sided dice with alphabets A, B, C, and D on each side, which denotes the option A, B, C, or D, respectively. You have to inform your friend about the outcome of rolling the dice. You can either tell the truth or lie as you like. Your friend will NOT know whether you are telling the truth or lying. More specifically, you are requested to make a choice for each of four possible dice rolling outcome the computer may generate. For example, you will get a statement like this : “Suppose that the true outcome of rolling the dice is B” Please choose the information you want to send to your friend: “The “The “The “The true true true true outcome outcome outcome outcome of of of of rolling rolling rolling rolling the the the the dice dice dice dice is is is is B” (tell A” (tell C” (tell D” (tell the truth) a lie) a lie) a lie) There are four possible outcomes for the dice, so you will get four statements and you have to make four possible choices without knowing the real outcome of the dice. After your choices are made the real outcome of rolling the dice will be revealed only to you. The choice you made for that specific dice outcome will determine the earnings for you and your friend in case you are selected to be a sender. In case you are selected to be a receiver the choice made by your friend will determine your earnings and your friend’s earnings in part 2. 35 Appendix B Formal analysis for behavioral predictions for Ranking Condition In this Appendix we present a formal analysis of behavioral predictions for ranking choice condition assuming different models. First, consider players have outcome-oriented social preferences and are motivated by inequality aversion as in ?. For a two-player game the utility function equals: { (1 + 𝛼𝑖 )𝑚𝑖 − 𝛼𝑖 )𝑚𝑗 if 𝑚𝑖 ≤ 𝑚𝑗 𝑈𝑖 (𝑚) = (B1) (1 − 𝛽𝑖 )𝑚𝑖 + 𝛽𝑖 𝑚𝑗 if 𝑚𝑖 > 𝑚𝑗 where parameter 𝛼𝑖 measures the extent player 𝑖 dislikes disadvantageous inequality and 𝛽𝑖 measures the extent player 𝑖 dislikes advantageous inequality. The parameters follow the restrictions 𝛼𝑖 ≥ 𝛽𝑖 1 and 0 ≤ 𝛼𝑖 < 1. First, recall the four allocations considered: A(20,20); B(15,30), C(30,15), and D,(25,25). Allocations B and C give the same inequality between players. Given that player i dislikes more being behind than being ahead allocation B is at least equally preferred to allocation C. Allocation A and D give the same inequality as well but allocation D has a higher total endowment. As such, allocation D is strictly preferred to allocation A. Therefore, the value of 𝛽𝑖 is decisive for ranking allocations A, C, and D. In case of Fehr and Schmidt preferences, Player 𝑖 ranks the four allocations in the following way29 ⎧ ⎨𝐶 ≻ 𝐷 ≻ 𝐴 ≻ 𝐵 if 0 ≤ 𝛽𝑖 < 1/3 𝐹𝑆 𝑅𝑎𝑛𝑘𝑖 = 𝐷 ≻ 𝐶 ≻ 𝐴 ≻ 𝐵 if 1/3 ≤ 𝛽𝑖 < 2/3 (B2) ⎩ 𝐷 ≻ 𝐴 ≻ 𝐶 ≻ 𝐵 if 𝛽𝑖 ≥ 2/3 Next assume that individuals have quasi-maximin preferences like in Charness and Rabin (2002). Consider the homogenous and reciprocity-free version of their model. The utility function for player 𝑖 is given by: 𝑈𝑖 (𝑚) = (1 − 𝜆)𝑚𝑖 + 𝜆[𝛿𝑚𝑖𝑛{𝑚𝑖 , 𝑚𝑗 } + (1 − 𝛿)(𝑚𝑖 + 𝑚𝑗 )] (B3) The parameter 𝜆 ∈ [0, 1] measures the extent player 𝑖 cares about social surplus versus his own monetary payoff. Parameter 𝛿 ∈ [0, 1] gives the concern for the well-being of the worst-ff player versus the concern for efficiency. Allocation D is always preferred to allocation A. Allocation C is always preferred to allocation B unless player i does not care about his own monetary payoff, i.e., 𝜆 = 1. Allocation C and D are necessarily the two preferred allocations and allocations A and B are the two least preferred allocations. In particular the possible rankings and 29 The same prediction can be derived with the Bolton and Ockenfels (2000) specification for inequity aversion. 36 corresponding conditions are: ⎧ 𝐶≻𝐷≻𝐴≻𝐵 ⎨𝐷 ≻ 𝐶 ≻ 𝐴 ≻ 𝐵 𝑅𝑎𝑛𝑘𝑖𝐹 𝑆 = 𝐷≻𝐶≻𝐵≻𝐴 ⎩𝐷 ≻ 𝐴 ≻ 𝐶 ≻ 𝐵 if if if if 0 ≤ 𝜆 < 1/(𝛿 + 2) 1/(𝛿 + 2) ≤ 𝜆 < 2/(1 + 2𝛿) and 𝜆 < 1/(2 − 2𝛿) (B4) 1/(1 − 2𝛿) ≤ 𝜆 < 1/(2 − 2𝛿) and 𝛿 ≤ 1/2 𝛿 > 2/(1 + 2𝛿) and 𝛿 < 1/(2 − 2𝛿) and 𝛿 ≥ 1/2 For outcome-oriented social preferences models like ? and Charness and Rabin (2002) it is irrelevant if a player is dividing money with a stranger or a friend. Therefore, these models do not give different predictions for strangers and friends treatments. Appendix C Tables Table C1 PROPORTION OF LIES BY ALLOCATION RANK PREFERENCE N Strangers 76 Friends 68 N Strangers 21 Friends 28 Rank 1 Rank 2 Rank 3 18 32 42 23.7% 42.1% 55.3% 5 25 31 7.4% 36.8% 45.6% Subjects that lie once or twice Rank 1 Rank 2 Rank 3 3 7 11 14.3% 33.3% 52.4% 2 6 14 7.1% 21.4% 50.0% Rank 4 52 68.4% 29 42.6% Rank 4 9 42.9% 26 92.9% Table C2 MESSAGE SENT BY TRUE STATE AND TREATMENT Truth A(20,20) B(15,30) A(30,15) B(25,25) N Strangers Friends Strangers Friends Strangers Friends Strangers Friends 76 68 76 68 76 68 76 68 A (20,20) 35 (46.1%) 38 (55.9%) 5 (6.6%) 4 (5.9%) 1 (1.3%) 2 (2.9%) 1 (1.3%) 1 (1.5%) 37 B (15,30) 1 (1.3%) 3 (4.4%) 21 (27.6%) 32 (47.1%) 7 (9.2%) 1 (1.5%) 2 (2.6%) 1 (1.5%) C (30,15) 21 (27.6%) 4 (5.9%) 23 (30.3%) 2 (2.9%) 51 (67.1%) 46 (67.6%) 20 (26.3%) 0 (0.0%) D (25,25) 19 (25.0%) 23 (33.8%) 27 (35.5%) 30 (44.1%) 17 (22.4%) 19 (27.9%) 53 (69.7%) 66 (97.1%) Table C3 DISTRIBUTION OF ALLOCATIONS’ CHOICE BY RANKING PREFERENCE N 1 2 3 4 1 2 3 4 Strangers N=76 Friends N=68 A 3 14 55 4 10 19 19 20 B 1 1 7 67 3 11 23 31 C 39 22 13 2 6 28 23 11 D 33 39 1 3 49 10 3 6 Table C4 PROPORTION OF LIES BY MESSAGE AND RANKING INCENTIVE TO LIE A (20,20) 41 53.9% 73 96.10% 56.20% 30 44.10% 58 85.30% 51.70% Lie Strangers N=76 Ranking incentive to lie Lie/Ranking incentive Lie Friends N=68 Ranking incentive to lie Lie/Ranking incentive B (15,30) 55 72.4% 75 98.70% 73.30% 36 38.20% 65 95.60% 40.00% C (30,15) 25 32.9% 37 48.70% 67.60% 22 32.40% 62 91.20% 35.50% D (25,25) 23 30.3% 43 56.60% 53.50% 2 2.90% 19 27.90% 10.50% Table C5 UNCONDITIONAL MESSAGES SENT BY LIARS (p-values) Number of lies A (20,20) B (15,30) C (30,15) D (25,25) Strangers Robust 144 7 (4.9%) 15 (10.4%) 53 (36.8%) 69 (47.9%) Friends Robust 107 7 (6.5%) 8 (7.5%) 21 (19.6%) 71 (66.4%) 38 Table C6 PROPORTION OF LIES PER TYPE OF LIE BY TREATMENT Altruistic lie Selfish lie Fairness of outcome Gains/Losses True [sender,receiver] allocation Final allocation unfair fair unfair fair fair unfair fair unfair fair fair [-5,10] B(15,30) D(25,25) B(15,30) A(20,20) B(15,30) C(30,15) A(20,20) C(30,15) D(25,25) C(30,15) D(25,25) A(20,20) Pareto white lie Spite black lie A(20,20) C(30,15) D(25,25) C(30,15) C(30,15) D(25,25) B(15,30) A(20,20) B(15,30) B(15,30) A(20,20) D(25,25) [-10,5] [-15,15] [5,-10] [10,-5] [15,-15] [5,5] [-5,-5] Strangers Robust (144 lies) 1.4% 11.1% 1.4% 0.7% 7.6% 9.7% 3.5% 13.9% 20.1% 13.2% 16.7% 0.7% Table C7 PROPORTION OF SUBJECTS ACCORDING TO THE NUMBER OF LIES TOLD TO BOTH A STRANGER AND A FRIEND Strangers Friends Never Once Twice Three times Always Never Once Twice Three times Always 12(15.4%) 1(1.3%) 0(0.0%) 2(2.6%) 0(0.0%) 7(9.0%) 3(3.8%) 1(1.3%) 0(0.0%) 0(0.0%) 10(12.8%) 5(6.4%) 6(7.7%) 5(6.4%) 0(0.0%) 3(3.8%) 2(2.6%) 2(2.6%) 16(20.5%) 0(0.0%) 0(0.0%) 0(0.0%) 1(1.3%) 1(1.3%) 1(1.3%) 39 Friends Robust (107 lies) 3.7% 19.6% 1.9% 2.8% 1.9% 2.8% 1.9% 5.6% 23.4% 11.2% 23.4% 1.9%
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