Retribution in a Cheap-talk Experiment

We use a two-person 3-stage game to investigate whether people choose to punish or reward another player by sacrificing money to increase or decrease the other person’s payoff. One player sends a message indicating an intended play, which is either favorable or unfavorable to the other player in the game. After the message, the sender and the receiver play a simultaneous 2x2 game. A deceptive message may be made, in an effort to induce the receiver to make a play favorable to the sender. Our focus is on whether receivers’ rates of monetary sacrifice depend on the process and the perceived sender’s intention, as is suggested by the literature on deception and procedural satisfaction. Models such as Rabin (1993), Sen (1997), and Charness and Rabin (1999) also permit rates of sacrifice to be sensitive to the sender’s perceived intention, while outcome-based models such as Fehr and Schmidt (1999) and Bolton and Ockenfels (1997) predict otherwise. We find that deception substantially increases the punishment rate as a response to an action that is unfavorable to the receiver. We also find that a small but significant percentage of subjects choose to reward a favorable action choice made by the sender. * We thank Antonio Cabrales, Rachel Croson, Maurice Schweitzer, and seminar participants at the University of Amsterdam for helpful comments. Brandts gratefully acknowledges support from the Spanish DGCICYT (PB93-0679 and PB94-0663-C03-01). This project was started while he was visiting the Department of Economics of the University of California at Berkeley. He thanks the members of the Department at Berkeley for their hospitality. Charness gratefully acknowledges support from the MacArthur Foundation. This paper is part of the EU-TMR Research Network ENDEAR (FMRX-CT98—0238).