The Impact of Oaths and Preferences for Truth-Telling: Experimental Evidence in a Financial Setting

Co-authors: Sorravich Kingsuwankul and Marie Claire Villeval

Abstract
We use a laboratory experiment to study the impact of oaths in financial markets where lying has been shown to be commonplace and difficult to detect. We find that oaths reduce both lies that are detectable and lies that are deniable, leading to better outcomes for investors. Exploring the role of preferences for truth-telling, we document the importance of both internal and reputational costs of breaking an oath. We show that for investors the oath is neither sufficient nor necessary to generate trust: ultimately investors rely on their experience. We link our laboratory results to a survey we conducted in the Netherlands where oaths are required in the banking sector.