When Half-Truths Aren’t Half-Bad: Sale Reps’ Selective Underreporting to Facilitate Market Exchange

Abstract

A central benefit of manufacturers’ sales reps is their ability to provide sellers with information about prospective buyers. Yet sales reps often selectively under-report this information, which is viewed as a major problem by sellers and academics alike. We feel this is only part of the story. Beyond their economic roles of passing along information, sales reps also manage social tensions between sellers and buyers that can threaten exchange. We show selective under-reporting can be beneficial to facilitate exchanges that would be impossible with fully truthful reports. We develop a game-theoretic model in a cheap-talk setting that adds the sales reps’ social role, and show when and which piece(s) of information sales reps will under-report to induce buyers and sellers to agree to a deal. We show this makes all three parties better off, generating a Pareto-improving “Selective Under-reporting” equilibrium. Our work suggests that half-truths aren’t always half-bad and can serve as an essential social lubricant for exchange. This broadens our understanding of the complexity of sales reps’ work and sales managers’ toolkit for managing under-reporting, and suggests new understandings of third parties’ roles in a world increasingly focused on information and big data.