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Promises and Endogenous Reneging Costs

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  • Heller, Yuval
  • Sturrock, David

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.

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  • Heller, Yuval & Sturrock, David, 2017. "Promises and Endogenous Reneging Costs," MPRA Paper 78803, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:78803
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    References listed on IDEAS

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    1. Berman, Ron & Heller, Yuval, 2020. "Naive Analytics Equilibrium," MPRA Paper 103824, University Library of Munich, Germany.

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    More about this item

    Keywords

    Promises; lying costs; joint projects; input games; partnerships.;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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