Promises and Partnership

Abstract:     
We examine experimentally the impact of communication on trust and cooperation. Our design admits observation of promises, lies, and beliefs. The evidence is consistent with people striving to live up to others' expectations in order to avoid guilt, as can be modeled using psychological game theory. When players exhibit such guilt aversion, communication may influence motivation and behavior by influencing beliefs about beliefs. Promises may enhance trustworthy behavior, which is what we observe. We argue that guilt aversion may be relevant for understanding strategic interaction in variety of settings, and that it may shed light on the role of language, discussions, agreements, and social norms in these contexts.

Number of Pages in PDF File: 32

Keywords: Promises, partnership, contract theory, behavioral economics, hidden action, moral hazard, lies, social preferences, psychological game theory, guilt aversion, reciprocity, fairness

JEL Classification: A13, B49, C72, C91, D63, D64, J41

working papers series