Promises, Reliance, and Psychological Lock-In

Abstract

We obtain experimental evidence that suggests that promisors are more likely to keep promises the more they were relied on by a promisee; that this effect is anticipated by promisees, who accordingly strategically overinvest to lock promisors into keeping their promises (psychological lock-in); and therefore that legal enforcement can reduce overinvestment as promisees do not need to make use of the extralegal mechanism of psychological lock-in when the legal regime induces promisors to perform instead. These results contrast with the central prediction of the holdup literature that underinvestment results in the absence of legal enforcement.