Promises and Expectations

We investigate why people keep their promises in the absence of external enforcement mechanisms and reputational e¤ects. In a controlled economic 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 signi…cant change in promisor behavior. We document for the …rst time that a promisor’s aversion to disappoint 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 …ndings of previous contributions as special cases. Keywords: promises, expectations, beliefs, contracts JEL Classi…cation: A13, C91, D03, C72, D64, K12. We thank Mark Greenberg whose insightful comments in‡uenced the design of our experiment. We are also grateful to Jason Abaluck, Jennifer Arlen, Timothy Armstrong, Arthur Campbell, Gary Charness, Judy Chevalier, Martin Dufwenberg, Constança Esteves-Sorenson, Craig Fox, Robert Gibbons, Phil Haile, Holger Herz, Lisa Kahn, Navin Kartik, Amanda Kowalski, Rosario Macera Parra, Mush…q Mobarak, Barry Nalebu¤, Stefan Palan, Heikki Rantakari, Frédéric Schneider, Marta Serra Garcia, Seana Shi¤rin, Joel Sobel, Rebecca Stone, Shyam Sunder, Nathan Yang, Noam Yuchtman and seminar audiences at NYU, UCLA, Yale, and at the UCSD Deception, Incentives and Behavior Conference for helpful comments and suggestions as well as Estela Hopenhayn and the California Social Science Experimental Laboratory (CASSEL) at UCLA for helping us to conduct the experiments. yYale School of Management, 165 Whitney Avenue, New Haven, CT 06511, ‡orian.ederer@yale.edu. zUCLA School of Law, 385 Charles E. Young Drive, 1242 Law Building, Los Angeles, CA 90095, stremitzer@law.ucla.edu.

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