“The Impact of Hard Information on Self-Dealing: Experimental Evidence” by Dr. Baohua XIN
Dr. Baohua XIN
Associate Professor of Accounting
Rotman School of Management
University of Toronto
Hard accounting information provides a fact-based foundation for economic exchange that makes it more difficult for people to disagree about economic outcomes and their causes. One likely result is that hard information deters self-dealing and the deceptive communication necessary to conceal such conduct. Because successful self-dealing cannot be directly observed in naturally occurring data, we conduct an experiment where this behavior can emerge endogenously along with a concealment strategy fashioned by the self-dealer. We experimentally manipulate the availability of hard information and soft communication through cheap talk (i.e., “chat”). We test multiple hypotheses about how the incidence of untruthful soft communication, manipulative “real” actions, and trust vary when hard information can be supplied. Our experimental evidence shows that hard information can be a powerful force in promoting honest communication and reducing self-dealing. Surprisingly, we also demonstrate that economies where soft communication is possible but hard information cannot be supplied are characterized simultaneously by frequent self-dealing and high levels of trust as evidenced by willingness to invest. Evidence from additional tests suggest that this seeming contradiction is due to self-dealers limiting their gains to possibly preserve the long-term relationship and the use of chat to personalize the exchange relationship and produce trust by their partner.