Lies and Reciprocity in Economic and Social Interactions

We study experimentally how (un)selfish lies are reciprocated – or not – in subsequent economic interactions in the labor market. We find that while selfish lies are punished (negative reciprocity), prosocial and altruistic lies are neither punished nor rewarded (lack of positive reciprocity). All three types of lies adversely affect the outcomes of subsequent gift-exchange games, either through lower wages or through lower effort provisions. We show that even kindness, when conveyed via a “charitable” altruistic lie, harms economic efficiency and disadvantages the liar. Our results add insight to our understanding of the implications of unethical behavior in the markets and point to the importance of honesty as a foundation of efficient economic interactions.