Why Do Business Losses Cause Conflict?

29 Pages Posted: 13 Dec 2019

See all articles by Henrik Lando

Henrik Lando

Copenhagen Business School - CBS Law

Multiple version iconThere are 2 versions of this paper

Date Written: November 18, 2019

Abstract

Evidence suggests that conflicts between contracting parties are more prone to occur when a party has suffered a significant loss. It is argued that the phenomenon is difficult to understand within conventional contract theory, which assumes full rationality, while behavioral theories based on the concepts of motivated reasoning and reciprocity provide interesting explanations. Thus, losses can trigger motivated, self-serving perceptions and beliefs, which in turn are likely to induce negative reciprocity as well as counter-productive acts aimed at bolstering self-image. These explanations are demonstrated to be well supported by experiments.

Keywords: contracts, contract theory, behavioural theory, conflict, losses

JEL Classification: K12, D03, D86

Suggested Citation

Lando, Henrik, Why Do Business Losses Cause Conflict? (November 18, 2019). Copenhagen Business School, CBS LAW Research Paper No. 19-42. Available at SSRN: https://ssrn.com/abstract=3503302 or http://dx.doi.org/10.2139/ssrn.3503302

Henrik Lando (Contact Author)

Copenhagen Business School - CBS Law ( email )

Porcelaenshave 18B, 1
Frederiksberg 2000
Denmark

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