Academic journal article Review of Social Economy

Lying, Integrity, and Cooperation

Academic journal article Review of Social Economy

Lying, Integrity, and Cooperation

Article excerpt

Abstract While talk is cheap to some, it is expensive to others for whom moral considerations come into play. We employ a simple two-stage modified prisoner's dilemma game where integrity is endowed on a continuum to analyze when agents will lie in random economic interactions. If there is sufficient integrity in the population, all agents make a promise in the first stage to cooperate in the second. Some agents always lie, some always tell the truth, and some behave conditionally. Enhanced cooperation is a byproduct of integrity. In a second random interaction without the possibility of exit, some agents "switch" their behavior, that is, some who lied in the first period now tell the truth in the second (they've "reformed"), and some who told the truth in the first period now lie in the second (they've become "cynical").

Keywords: lying, integrity, cooperation, prisoner's dilemma, moral motivation

INTRODUCTION

Some people do not lie, even if they could get away with it. This seemingly innocuous fact poses important economic implications. Most fundamentally, it means that economic interactions do not always need to be mediated by binding contracts, which are sometimes difficult, if not impossible, to write, monitor and enforce. It means that sometimes sellers, workers, managers, and collaborators of all sorts can be counted on to perform even when nothing seems to assure that they will. For many economists such behavior is puzzling, especially if it is postulated that the only reason economic agents keep their word is to further their material interests, either directly or through reputation. In this account verbal representations are nothing but "cheap talk"--they are not credible. The problem is that casual empiricism and experimental evidence do not support this view. We address this apparent anomaly by providing an explanation for truth-telling that hinges on the existence of integrity; that is, integrity sometimes provides a reason not to lie, even when material incentives suggest the contrary. Verbal representations and promises invoke integrity.

The experimental literature is replete with cases of people cooperating in opposition to their material incentives. (1) Typically experimenters construct social dilemmas like a prisoner's dilemma or voluntary contribution to a public good where, based on instrumental rationality, the dominant strategy is to defect. But consistently great numbers do not defect, even where there is anonymity and the game is played only once. (2) In his meta-analysis of 37 different studies consisting of 130 distinct social dilemma experiments, Sally (1995: 62) calculates a mean cooperation rate of 47.4% for the entire pooled sample. Perhaps more surprisingly, cooperation rates tend to jump dramatically when subjects are first allowed to talk with one another, and then leave the experiment in isolation. (3) Sally (1995) further estimates (noncredible) promises to cooperate elicited by experimenters increase cooperation by 12-30%, depending on the regression model.

For economists promise-making shouldn't matter because representations against one's own material interests (e.g. "I will invest in the public good if you do the same") lack credibility. Part of the issue involves context. Cheap talk may indeed be meaningless in economic interactions amongst oligopolists, for instance. A low cost potential entrant should not worry about the blustering of a high cost incumbent when making an entry decision. Such a context may be one of mutual deceit, where it is known and acceptable to lie. But a problem arises in trying to import credibility as necessary to assure compliance in all economic interactions. We postulate the sole reliance on credibility is responsible for the divergence between theory and evidence. Compliant behavior in social dilemmas becomes easier to understand when its source is located in either credibility or integrity. When people talk to one another and make certain representations their integrity becomes a factor, even when credibility is not, and hence they may honor their agreements in the face of countervailing material incentives. …

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