Lies, Labels, and Mechanisms

Abstract

We test whether lying aversion can steer equilibrium selection in mechanism design. In a principal-worker environment, the direct mechanism admits two dominant-strategy equilibria: the designer's target and a worker-optimal outcome. We show this limitation persists for all robust mechanisms, then ask whether framing misreports as explicit lies helps. We develop a 2X2 experiment that varies direct vs. extended mechanisms with implicit vs. explicit messages. We find that framing misreporting of type as an explicit lie shifts play away from the worker-optimal outcome toward truthful reporting, raising designer payoffs with minimal efficiency loss. These findings indicate that lying aversion is an effective lever for aligning behavior with social objectives.