Promises, Reliance, and Psychological Lock-In

49 Journal of Legal Studies 33 (2020)

UCLA School of Law, Law-Econ Research Paper No. 15-17

117 Pages Posted: 18 Sep 2015 Last revised: 2 Sep 2020

See all articles by Rebecca Stone

Rebecca Stone

University of California, Los Angeles (UCLA) - School of Law

Alexander Stremitzer

ETH Zurich

Date Written: May 2020

Abstract

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

Stone, Rebecca and Stremitzer, Alexander, Promises, Reliance, and Psychological Lock-In (May 2020). 49 Journal of Legal Studies 33 (2020), UCLA School of Law, Law-Econ Research Paper No. 15-17, Available at SSRN: https://ssrn.com/abstract=2660949

Rebecca Stone

University of California, Los Angeles (UCLA) - School of Law ( email )

385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States

Alexander Stremitzer (Contact Author)

ETH Zurich ( email )

Haldeneggsteig 4
Zurich, 8092
Switzerland
+41 (44) 632 40 08 (Phone)

HOME PAGE: http://www.lawecon.ethz.ch/people/stremitzer.html

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