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.
Cite
@article{arxiv.2602.16973,
title = {Lies, Labels, and Mechanisms},
author = {Alex L. Brown and Ethan Park and Rodrigo A. Velez},
journal= {arXiv preprint arXiv:2602.16973},
year = {2026}
}