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Guilt from Promise-Breaking and Trust in Markets for Expert Services – Theory and Experiment

  • Beck, Adrian

    (Department of Economics, University of Innsbruck)

  • Kerschbamer, Rudolf

    (Department of Economics, University of Innsbruck)

  • Qiu, Jianying

    (Department of Economics, University of Innsbruck)

  • Sutter, Matthias


    (Department of Economics, School of Business, Economics and Law, Göteborg University)

We examine the influence of guilt and trust on the performance of credence goods markets. An expert can make a promise to a consumer first, whereupon the consumer can express her trust by paying an interaction price before the expert's provision and charging decisions. We argue that the expert's promise induces a commitment that triggers guilt if the promise is broken, and guilt is exacerbated by higher interaction prices. An experiment qualitatively confirms our predictions: (1) most experts make the predicted promise; (2) proper promises induce consumer-friendly behavior; and (3) higher interaction prices increase the commitment value of proper promises.

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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 436.

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Length: 49 pages
Date of creation: 17 Mar 2010
Date of revision:
Handle: RePEc:hhs:gunwpe:0436
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
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  1. Steffen Huck & Gabriele K. Ruchala & Jean-Robert Tyran, 2006. "Competition Fosters Trust," Discussion Papers 06-22, University of Copenhagen. Department of Economics.
  2. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  3. Charness, Gary B & Dufwenberg, Martin, 2008. "Broken Promises: An Experiment," University of California at Santa Barbara, Economics Working Paper Series qt6836m74q, Department of Economics, UC Santa Barbara.
  4. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  6. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  7. Dulleck, Uwe & Kerschbamer, Rudolf & Sutter, Matthias, 2009. "The Economics of Credence Goods: On the Role of Liability, Verifiability, Reputation and Competition," IZA Discussion Papers 4030, Institute for the Study of Labor (IZA).
  8. Ernst Fehr, 2009. "On The Economics and Biology of Trust," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 235-266, 04-05.
  9. Huck, Steffen & Lünser, Gabriele & Tyran, Jean-Robert, 2008. "Consumer Networks and Firm Reputation: A First Experimental Investigation," CEPR Discussion Papers 6624, C.E.P.R. Discussion Papers.
  10. Ernst Fehr & Simon G�chter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 159-181, Summer.
  11. Gary Charness & Martin Dufwenberg, 2004. "Promises and Partnership," Levine's Bibliography 122247000000000001, UCLA Department of Economics.
  12. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  13. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  14. Charness, Gary B & Dufwenberg, Martin, 2006. "Promises & Partnership," University of California at Santa Barbara, Economics Working Paper Series qt0127h86v, Department of Economics, UC Santa Barbara.
  15. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  16. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  17. Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
  18. Brandts, Jordi & Holt, Charles A, 1992. "An Experimental Test of Equilibrium Dominance in Signaling Games," American Economic Review, American Economic Association, vol. 82(5), pages 1350-65, December.
  19. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  20. Uri Gneezy, 2005. "Deception: The Role of Consequences," American Economic Review, American Economic Association, vol. 95(1), pages 384-394, March.
  21. Tore Ellingsen & Magnus Johannesson, 2004. "Promises, Threats and Fairness," Economic Journal, Royal Economic Society, vol. 114(495), pages 397-420, 04.
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