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

Daniela Di Cagno (), Werner Güth (), Tim Lohse (), Francesca Marazzi () and Lorenzo Spadoni ()
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Daniela Di Cagno: LUISS Guido Carli
Werner Güth: Max Planck Institute for Research on Collective Goods
Tim Lohse: Berlin School of Economics and Law
Lorenzo Spadoni: University of Cassino and Southern Lazio

No 531, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: 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.

Keywords: Acquiring-a-company experiments; Information leaks; Cheap talk (Not) Lying; Ultimatum bargaining (search for similar items in EconPapers)
JEL-codes: C78 C91 D83 D91 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2022-01-31, Revised 2022-01-31
New Economics Papers: this item is included in nep-exp and nep-gth
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