Document Type
Article
Publication Date
2013
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.
Keywords
contracts, precautions, psychology, reference point, reference transaction, prospect theory
Publication Title
University of Chicago Law Review
Repository Citation
Hoffman, David A. and Wilkinson-Ryan, Tess, "The Psychology of Contract Precautions" (2013). All Faculty Scholarship. 769.
https://scholarship.law.upenn.edu/faculty_scholarship/769
Included in
Behavioral Economics Commons, Cognition and Perception Commons, Consumer Protection Law Commons, Contracts Commons, Law and Economics Commons, Social Psychology Commons
Publication Citation
80 U. Chi. L. Rev. 395 (2013)