Speaker: Terry Tam

Topic: Lying and Lie-detection

Abstract: This paper analyzes strategic interactions between lying and lie-detection, and studies the optimal design for costly lie-detection and its effectiveness. An informed sender wants to persuade an uninformed receiver to take high actions but the receiver wants to match the action with the true state. The sender makes a claim about the true state and the receiver decides whether to incur a cost to inspect the truthfulness of the claim. I show that lie-detection technology is useful in improving the receiver’s welfare if and only if the cost of lie-detection is sufficiently low and prior expectation of the state is not too high. The receiver-optimal design of admissible claims leads to an equilibrium with three intervals in the state space, where types in the top interval are induced to make precise and truthful claims about the state, which are mimicked by types in the bottom interval and randomly inspected, while types in the middle interval make a truthful but vague claim that is never inspected. Compared to state verification, lie-detection is shown to be more beneficial to the receiver because it provides incentives for moderate and high types to be truthful. This suggests that fact-checking of politicians’ claims is effective in holding them countable and deterring them from lying.

Location:  via Zoom; Room 218

Meeting Time: Apr. 1st, 2021, 8:30-9:30am CST; Mar. 31st, 2021, 8:30-9:30pm EST