The Effects of Perceived Fairness and Communication on Honesty and Collusion in a Multi-Agent Setting

Abstract

ABSTRACT: This study examines how two factors, the agents’ perceptions regarding the fairness of the principal and inter-agent communication, affect agents’ behaviors under a peer reporting system. Analytical models show that when agents can observe each other’s actions and local signals, a peer reporting system with a verification mechanism (using one agent’s information to verify the other’s) and a reward for truthful whistleblowing can induce agents to report honestly and thereby help the principal achieve the first-best outcome. However, behavioral research suggests that the agents’ perception regarding the fairness of the principal, as well as communication among agents, may affect how honestly agents report. The results of my experiment show that, under a peer reporting system with a high reward for whistleblowing, the agents’ perception regarding the fairness of the principal positively affects the agents’ reporting honesty and negatively affects their explicit attempts at collusion. Communication between agents decreases their reporting honesty when the principal is perceived as unfair, but not when the principal is perceived as fair.