Hiding an inconvenient truth: Lies and vagueness

When truth con‡icts with e¢ ciency, can verbal communication destroy e¢ ciency? Or are lies or vagueness used to hide inconvenient truths? We consider a sequential 2-player public good game in which the leader has private information about the value of the public good. This value can be low, high, or intermediate, with the latter case giving rise to a prisoners’ dilemma. Without verbal communication, e¢ ciency is achieved, with contributions for high or intermediate values. When verbal communication is added, the leader has an incentive to hide the precise truth when the value is intermediate. We show experimentally that, when communication about the value must be precise, the leader frequently lies, preserving e¢ ciency by exaggerating. When communication can be vague, the leader turns to vague messages when the value is intermediate, but not when it is high. Thus, she implicitly reveals all values. Interestingly, e¢ ciency is still preserved, since the follower ignores messages altogether and does not seem to realize that vague messages hide inconvenient truths. JEL-codes: C72; C92; D83; H41.