Promises and Endogenous Reneging Costs

Heller, Yuval and Sturrock, David (2017): Promises and Endogenous Reneging Costs.

Abstract

We present a novel theoretical mechanism that explains the capacity for non-enforceable communication about future actions to improve efficiency. We explore a two-player partnership game where, before choosing a level of effort to exert on a joint project, each player makes a cheap talk promise to their partner about their own future effort. We allow agents to incur a psychological cost of reneging on their promises. We demonstrate a strong tendency for evolutionary processes to select agents who incur intermediate costs of reneging, and show that these intermediate costs induce second-best optimal outcomes.

• Item Type: MPRA Paper
• Language: English
• Keywords: Promises, lying costs, joint projects, input games, partnerships.
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C73 - Stochastic and Dynamic Games ; Evolutionary Games ; Repeated Games; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles

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