Loss aversion and lying behavior

We theoretically show that loss-averse agents are more likely to lie to avoid receiving a low payoff after a random draw the lower the ex-ante probability of this bad outcome. The ex-ante expected payoff increases as the bad outcome becomes less likely, and hence the greater is the loss avoided by lying. We demonstrate robust support for this theory by reanalyzing the results from the extant literature and with a new experiment that varies the outcome probabilities and is run double-anonymous.