Ioannidis, K., Offerman, T. and Sloof, R. (2022). Lie detection: A strategic analysis of the Verifiability Approach American Law and Economics Review, 24:659--705.

Recent research in psychology has identified a promising lie detection method. In the Verifiability Approach, investigators make use of the insight that truth-tellers are forthcoming in providing specific, verifiable details where liars sometimes prefer to remain vague. We provide a strategic analysis of the interaction between a speaker who wants to convince an investigator of his innocence and an investigator who prefers to find out the truth. The investigator can check the statement of the speaker at some cost. The examination yields informative but imperfect evidence. If the investigator decides that the speaker is lying, she adds an obstruction penalty in case her investigation suggested that the statement was a lie. We rank the equilibria of the game in terms of aggregate welfare. Our results reveal that the highest welfare is achieved if the obstruction penalty exceeds a minimum threshold that is needed to make speech informative. Surprisingly, increasing the obstruction penalty beyond this threshold decreases welfare.