Lies, Labels, and Mechanisms

TL;DR

This paper investigates whether framing misreports as lies can influence equilibrium outcomes in mechanism design, showing that explicit lying aversion can promote truthful reporting and improve designer payoffs.

Contribution

It demonstrates that explicitly framing misreports as lies can shift equilibrium behavior towards truthful reporting, enhancing mechanism efficiency.

Findings

Framing misreports as lies increases truthful reporting.

Explicit lying framing improves designer payoffs.

Lying aversion can be a useful tool in mechanism design.

Abstract

We test whether lying aversion can steer equilibrium selection in mechanism design. In a principal-worker environment, the direct mechanism admits two dominant-strategy equilibria: the designer's target and a worker-optimal outcome. We show this limitation persists for all robust mechanisms, then ask whether framing misreports as explicit lies helps. We develop a 2X2 experiment that varies direct vs. extended mechanisms with implicit vs. explicit messages. We find that framing misreporting of type as an explicit lie shifts play away from the worker-optimal outcome toward truthful reporting, raising designer payoffs with minimal efficiency loss. These findings indicate that lying aversion is an effective lever for aligning behavior with social objectives.