Groupe d’études et de recherche en analyse des décisions

The importance of being honest

Nicolas Klein Université de Montréal, Canada

This paper analyzes the case of a principal who wants to give an agent proper incentives to explore a hypothesis which can be either true or false. The agent can shirk, thus never proving the hypothesis, or he can avail himself of a known technology to produce fake successes. This latter option either makes the provision of incentives for honesty impossible, or does not distort its costs at all.