  We develop a framework in which individuals' preferences coevolve with their
abilities to deceive others about their preferences and intentions.
Specifically, individuals are characterised by (i) a level of cognitive
sophistication and (ii) a subjective utility function. Increased cognition is
costly, but higher-level individuals have the advantage of being able to
deceive lower-level opponents about their preferences and intentions in some of
the matches. In the remaining matches, the individuals observe each other's
preferences. Our main result shows that, essentially, only efficient outcomes
can be stable. Moreover, under additional mild assumptions, we show that an
efficient outcome is stable if and only if the gain from unilateral deviation
is smaller than the effective cost of deception in the environment.
