Publication Date: December 2013
Update Date: March 2016
We investigate why people keep their promises in the absence of external enforcement mechanisms and reputational eﬀects. In a controlled laboratory experiment we show that exogenous variation of second-order expectations (promisors’ expectations about promisees’ expectations that the promise will be kept) leads to a signiﬁcant change in promisor behavior. We provide clean evidence that a promisor’s aversion to disappointing a promisee’s expectation leads her to keep her promise. We propose a simple theory of lexicographic promise keeping that is supported by our results and nests the ﬁndings of previous contributions as special cases.
Promises, Expectations, Beliefs, Contracts
JEL Classification Codes: A13, C91, D03, C72, D64, K12