Private Law Theory

Abstract:
In the absence of a legal regime enforcing promises, the classical prediction of contract theory is that promisees will underinvest in reliance whenever the promisor has a self-interested reason to break her promise down the road. But if a promisor experiences guilt for breaking her promise, this guilt may be intensified by the promisee’s reliance on the promise. Anticipating this, the promisee has a strategic reason to overinvest in reliance in order to psychologically lock the promisor in to keeping her promise. A legal regime that enforces promises may therefore have the unexpected benefit of reducing overreliance as promises no longer have to rely on the extra-legal mechanism of psychological lock-in in order to induce a promisor to keep her promise. We obtain experimental evidence supporting the existence of this psychological lock-in effect.

Stone, Rebecca and Stremitzer, Alexander, Promises, Reliance, and Psychological Lock-In (September 15, 2015). UCLA School of Law, Law-Econ Research Paper No 15-17.

First posted 2015-09-19 07:46:50