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«Forthcoming, American Economic Review Abstract We conduct an experiment assessing the extent to which people trade off the economic costs of ...»

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Expressive preferences have been experimentally documented to play a role in hypothetical choice situations, for example, by Feddersen, Gailmard, and Sandroni (2009). While, in the formulation of these authors, expressive preferences (EP) enter utility separably from economic costs, it is conceivable that EP also interact with incentives so that nonTo the extent that the PV survey implicitly measures EP, and separability arises.

conditional on the correctness of the statistical model’s specification, the results on the interaction term imply that EP may, in the range of economic stakes considered in this experiment, become more important in creating a difference in the perceived attractiveness This is as expected, given the setup of this experiment, and it suggests that the significance of 35HURTS in the earlier regressions stems from the fact that this variable (as well as the underlying social-preferences intensity of the individual) is correlated with intrinsic costs of lying. 35HURTS has a positive correlation with PV of 0.34. Within our experimental setup, we are unable to address any possible fundamental relationship between protected values and altruistic concerns, so we leave this to future research.

of truthfulness and lying as the stakes increase.19 Overall, the evidence available from this experiment does not allow us to discriminate definitively between EP and PV as possible sources of heterogeneity in agents’ lying behaviors. Additional factors relevant in the real world are also not addressed here. For example, intrinsic costs of lying may also be due to an internal reward mechanism for truthfulness that is activated when individuals are, for example, asked to recall the Ten Commandments or to sign an honor code (e.g. Mazar, Amir, and Ariely 2008).

D. Further results and robustness

Conceivably, participants may have worried about the wealth of the experimenters, which would show up in systematic variation in their choices in the effort task. But, there is no observable relationship between the participants’ levels of effort in that task and their PV, 35HURTS, or socially acceptable responding. This finding also confirms that the experimental design did not simply produce the same pattern of results in the truthtelling and the effort tasks. Moreover, our results are robust to controlling for investment experience, and to variations in samples and estimation methods. All these additional results are available upon request.

V. Conclusion

In this study, we examined individuals who were exposed to a simple, but realistic tradeoff: they could tell the truth and suffer economic costs of truthfulness, or they could lie and potentially incur intrinsic costs of lying. In our setting, there was no strategic incentive to tell the truth; the participants had no counterparty, no notion of a repeated game, no legal obligation, and no risk of being punished.

The experimental results unambiguously reject a type-based model. That is, the results refute Hypothesis TYP, that there exist only “the Ethical” (who care so much about the rightfulness of the process that they always tell the truth) and “the Economic” (who care only about their material payoffs and thus always lie when profitable). Instead, this paper Conceptually, EP may also be related to tendencies towards self-deception, though the previous results suggest that a standard measure of such tendencies does not explain behavior in this experiment.

supports Hypothesis HET, reflecting Gneezy’s (2005) conjecture of continuous heterogeneity of preferences for truthfulness: People balance process against consequences in a range of different ways. Moreover, we provide evidence that preferences for truthfulness are non-separable in intrinsic preferences and economic incentives. In sum, our findings point to heterogeneity, both among and within individuals, in their preferences for truthfulness.

This experiment cannot definitively identify the ultimate source(s) of the intrinsic costs of lying. Nor can it state whether the suggested preferences for truthfulness would also be at work at much higher stakes (as the protected-values explanation implies) or whether the validity of the results is limited to relatively low-stakes settings (as the expressivepreferences explanation suggests). Future research may be fruitfully conducted to answer these important questions.

To the extent that preferences for truthfulness apply in a wide range of settings, the results obtained in this study have implications regarding the effectiveness of methods to screen agents for their preferences for truthfulness, as well as implications for the optimal setting of incentive contracts.


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Table I: Manipulation checks Participants answered questions that asked for their assessments of announcing 31 and 35 cents, respectively. These questions were on a -2 to +2 scale. After reordering (the direction of the scale varies between questions), a value of +2 indicates that the action was seen as honest, non-manipulative, associated with a personal financial loss, and based on a long-term view.

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Table II: Behavior across economic costs of truthfulness This table presents the percentages of participants announcing 31 cents of earnings per share across the various economic cost of stating the truth (ECOST) conditions.

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Table III: Determinants of earnings management behavior This table presents coefficients of logit regressions. The dependent variable is TRUTHFUL CHOICE. The explanatory variables are described in the text. Columns (1) to (4) use data from all ECOST situations. Column (5) omits the free truth (ECOST = CHF 0) situation.

Robust standard errors, obtained by clustering at the individual level, appear in parentheses below coefficient estimates. ***, **, and * indicate significance at the 1%, 5%, and 10% levels, respectively.

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Table IV: Descriptive statistics of important explanatory variables This table presents descriptive statistics for our measure of altruistic concerns and for three candidate measures of intrinsic costs of lying. N = 261.

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A total of 261 subjects (median age: 23 years) participated in this online experiment. We recruited participants from undergraduate classes at the University of Zurich (Switzerland). 50% of the participants were economics and finance students, 40% psychology students, and 10% students from other fields. 42% were women and 58% were men (distributed across the fields). Participants received a fixed amount as payment for their participation and an additional variable amount as compensation determined by their choices. Anonymity was ensured.1


All participants were first assured of anonymity throughout the experiment, then asked to respond to a few demographic questions and to read some basic instructions. They were informed that they would individually receive a payment, CHF 8, for their completed participation in the study, and an additional payment that depended on their choices.2 The participants then completed the main parts of the experiment: 1) the truthtelling task, 2) the effort task, and 3) the measurement of protected values. (These tasks were not labelled for the participants.) The experiment ended with some final questions serving mainly as control variables; then all the participants were paid. For simplicity, we describe the procedure for only one of the randomized orders of tasks. For both the truthtelling and the effort tasks, participants first were required to demonstrate their understanding of the tasks and of the rules of the experiment.

Most participants received payment one week after the experiment. For this purpose, each participant had received, before the experiment, a code, based on which the experimenter prepared an envelope containing the earnings.

Participants received the sealed envelopes by indicating their personal codes.

At the time of the experiment, the exchange rate was about US $1 = CHF 1.15.

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