Promises, Reliance, and Psychological Lock-In
49 Journal of Legal Studies 33 (2020)
117 Pages Posted: 18 Sep 2015 Last revised: 2 Sep 2020
Date Written: May 2020
We obtain laboratory evidence that suggests that (i) promisors are more likely to keep promises the more they were relied upon by a promisee; (ii) this effect is anticipated by promisees, who accordingly strategically overinvest to lock promisors into keeping their promises (“psychological lock-in”); and therefore (iii) legal enforcement can reduce overinvestment as promisors don’t need to rely on the extra-legal mechanism of psychological lock-in when they can rely on the legal regime instead. We also conduct a vignette study that suggests that punishing behavior by third parties mirrors promise-keeping behavior by promisors. These results contradict the central prediction of the holdup literature that underinvestment will result in the absence of legal enforcement.
Keywords: promises, reliance, remedies, contracts, crowding out
JEL Classification: K12, A13, C91, C72, D64
Suggested Citation: Suggested Citation