An experiment on deception, reputation and trust.

Area of Science:

• Behavioral Economics
• Game Theory
• Experimental Economics

Background:

• Understanding deception is crucial in economic interactions.
• Traditional game theory models often assume perfect rationality, which may not reflect real-world deceptive behaviors.

Purpose of the Study:

• To investigate the strategic use of deception in a sender-receiver game.
• To analyze receiver behavior in response to sender deception, particularly around a high-stakes period.
• To compare experimental findings with predictions from Sequential Equilibrium and propose alternative models like Analogy-Based Sequential Equilibrium (ABSE).

Main Methods:

• A twenty-period sender-receiver game experiment was conducted.
• Senders were either malevolent (opposed objectives) or benevolent (truthful).
• Period 5 was assigned higher weight, creating a key period for strategic deception.

Main Results:

• Malevolent senders employed a specific deceptive tactic (truth then lie) in approximately 25% of trials.
• This deceptive tactic yielded higher expected payoffs compared to other observed strategies.
• A majority of receivers exhibited a lack of caution in the key period, even when no prior deception occurred.

Conclusions:

• Experimental results challenge the predictions of standard Sequential Equilibrium models.
• Analogy-Based Sequential Equilibrium (ABSE) provides a better framework for understanding observed behavior, with a significant portion of subjects reasoning coarsely.
• The findings highlight the prevalence and effectiveness of specific deception strategies and receiver susceptibility in strategic interactions.