Expecting Specific Performance

Abstract

Using a series of surveys and experiments, we find that ordinary people think that courts will give them exactly what they bargained for after breach of contract; in other words, specific performance is the expected contractual remedy. This expectation is widespread even for the diverse array of deals where the legal remedy is traditionally limited to money damages. But for a significant fraction of people, the focus on equity seems to be a naïve belief that is open to updating. In the studies reported here, individuals were less likely to anticipate specific performance when they were briefly introduced to the possibility that courts sometimes award damages in contract disputes.

We argue that the default expectation of equitable relief is a widespread but malleable intuition—and that even a fragile legal intuition has practical consequences, individually and systemically. In a follow-up experiment, we show that subjects are more interested in the prospect of efficient breach when they know that money damages are a possible remedy. This finding suggests that the mismatch between what people assume the law will do (specific performance) and what it actually does (money damages) sometimes encourages performance. We consider the potential for exploitation of this tendency. Finally, we offer some suggestions about how law and psychologists should elicit folk beliefs about legal rules and remedies.

Keywords: specific performance, contracts, equitable relief, heuristics, biases, law and psychology, consumer protection

JEL Classification: k12, d03