ECONOMICS OF LYING AND CHEATING

Homo economicus and homo sociologicus are compared and the economic th eory of sanctions is contrasted with sociological theories (e.g. diffe rential association). The main theme is the lying and cheating human, analyzed on the basis of methodological individualism and game theory. One important class of the effects of lying and cheating can be prese nted in terms of the principal-agent theory. It can be shown that dish onesty often works to the disadvantage of the dishonest person him- or herself. However, a Pinocchio effect could save on transaction costs. Cooperative and honest behaviour can be analyzed in static and dynami cal models. The paper concludes with mechanisms like the Clarke-Groves mechanism and the second-price auction that lead to honesty without t he threat of sanctions.