Renegotiation Behavior and Promise-keeping Norms (with Steve Leider, Ming Jiang)

  • Date: Jul 13, 2020
  • Time: 16:00
  • Speaker: Erin Krupka
  • University of Michigan
  • Location: Zoom meeting

Contracts rely on informal agreements and renegotiation, which both rely on norms. We test how promises and renegotiation impacts norms in a trust-based game using an experiment. We present a theoretical framework where successful (rejected) renegotiation strengthens (weakens) the norm. Our results support the framework’s predictions: most subjects make promises, and promises are largely fulfilled even when costly. The mere opportunity to renegotiate has a causal effect on trustworthiness and successful renegotiation increases trustworthiness. As predicted, many subjects do not renegotiate even though there is no strategic downside. Heterogeneity in beliefs in the norm strength predicts which subjects renegotiate.

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