Are People Sometimes Too Honest? Increasing, Decreasing, and Negative Returns to Honesty

Atin Basu Choudhary, Virginia Military Institute
John Conlon, University of Mississippi

Abstract

We show that sender honesty can hurt receivers in simple signaling games. The receiver faces a trade-off between its ability to work with senders and the quality of information it can get and use from them. Our example also contradicts recent work suggesting that returns to honesty should be increasing. Positive, increasing returns are restored in our model if the receiver can precommit.