Economic theory assumes that individuals are self-interested and that they will lie for material advantage. However, this is not always the case as lies have costs. In this video, JOEL SOBEL investigates the precise nature of these costs. Developing a theoretical model of the costs of lies, Sobel tests the resulting hypotheses in laboratory experiments. Though the work shows that a majority of subjects lie to the maximum possible extent, it also provides important insights into factors that can reduce the extent or the incidence of lying. Identifying areas for further research, Sobel explains how a fuller understanding of the costs of lies will help us to design organizations and relationships that better facilitate honest interaction.