Who cares when Value (Mis)reporting May Be Found Out? An Acquiring-a-Company Experiment with Value Messages and Information Leaks

Di Cagno DanielaGüth WernerLohse TimMarazzi FrancescaSpadoni Lorenzo
CEIS Research Paper
In an ultimatum bargaining, we investigate lying as falsely stating what one privately knows without, however, excluding that others find out the truth. Specifically, we modify the Acquiring-a-Company game. Privately informed sellers send messages about the alleged value of their company to potential buyers. Via random information leaks, they can also learn the true value before proposing a price which the seller finally accepts or not. Two-thirds of all sellers exaggerate the company’s value (especially if the true value is small) but increasing the leak probability surprisingly only mildly increases truth telling. Instead, it reduces the size of the lies. Moreover, it decreases overreporting (exaggerating the value to sell at a higher price) but increases underreporting (stating values below the actual ones to increases chances of trade). Buyers who found out value misreporting anchor their price proposals on the true value but do not explicitly discriminate against liars. In contrast, sellers are fully opportunistic and make their acceptance decision mainly dependent on whether the resulting payoff is positive. Thus, morality concerns do not seem to matter much in this market exchange. Altogether probabilistic leaks enhance trade and welfare what suggests to politically facilitate and encourage e.g. whistle blowing.
 

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Number: 531
Keywords: Acquiring-a-company experiments, Information leaks, Cheap talk (Not) Lying, Ultimatum bargaining
JEL codes: C78, C91, D83, D91
Volume: 20
Issue: 1
Date: Monday 31 January 2022
Revision Date: Monday 31 January 2022