The Psychology of Contract Precautions
Tess Wilkinson-Ryan (Penn) and I have a new draft paper up on SSRN: The Psychology of Contract Precautions. From the abstract:
“This research tests the intuition that parties to a contract approach each other differently before the contract is formed than they do once it is finalized. We argue that one of the most important determinants of self-protective behavior is whether the promisee considers herself to be in negotiations or already in an ongoing contract relationship. That shift affects precaution-taking even when it has no practical bearing on the costs and benefits of self-protection: the moment of contracting is a reference point that frames the costs and benefits of taking precautions. We present the results of three questionnaire studies in which respondents indicate that they would be more likely to protect their own interests—by requesting a liquidated damages clause, by purchasing a warranty, or by shopping around to ensure the best deal—when the contract is not yet finalized than they would when they understand the agreement to be finalized. We discuss competing explanations for this phenomenon, including both prospect theory and cognitive dissonance. Finally, we explore some doctrinal implications for work on disclosure, modification, and promissory estoppel.”
The paper is a part of a new literature on the moral psychology of contracting — see, e.g., Suckers, Obligations, Liquidated Damages. That said, it’s been quite a long time in production — I think we first started working on it in 2008 — and I’m thrilled to finally get it out in the open. It’s in draft form, so any comments you might have would be most welcome.