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Working Papers (2012), ESSEC Business School

The Value of Lies in an Ultimatum Game with Imperfect Information


Humans often lie strategically. We study this problem in an ultimatum game involving informed proposers and uninformed responders, where the former can send an unverifiable statement about the endowment received at the outset of the game. If there are some intrinsically honest proposers, a simple message game shows that the rest of them are likely to declare a lower-than-actual endowment to the responders, simply in order to reduce their expected endowment and be able to submit smaller offers. In the second part of the paper, we report on an experiment testing this game. On average, 88.5% of the proposers understate the actual endowment by 19%. Regression analysis shows that a one-dollar gap between the actual and declared amounts prompts proposers to reduce their offer by 19 cents. However, responders appear not to take such claims seriously, and thus the frequency of rejections increases. The consequence is a net welfare loss, that is specific to such a "free-to-lie" environment.

BESANCENOT, D., DUBART, D. and VRANCEANU, R. (2012). The Value of Lies in an Ultimatum Game with Imperfect Information. ESSEC Business School.