A Breach Born Every Minute
In the Spring, I asked you folks for some help thinking of examples of true Holmesian agreements, “contracts which, when breached, have a similar psychological profile to a speeding ticket.” It turned out to be pretty hard to identify such agreements, since most people believe breach to be a morally wrongful activity – not simply an option to pay damages at will. As Jonathan Baron and Tess Wilkinson-Ryan previously have found, the degree to which individuals find breach to be “bad” is quite manipulable: breaches to gain are worse than breaches to avoid loss, liquidated damages ameliorate feelings of reprehensibility, etc. Missing from this research has been a psychological theory of what makes breach so aversive.
Tess and I came up with a working hypothesis: breach is seen as a form of interpersonal exploitation that makes the breachee a sucker. We’ve put together a paper that reports on a series of experiments supporting this hypothesis, titled (naturally) “Breach Is For Suckers.” Check out the abstract, after the jump.
This paper presents evidence from three experiments offering evidence that parties see breach of contract as a form of exploitation, making disappointed promisees into “suckers.” In psychology, being a sucker turns on a three-part definition: betrayal, inequity, and intention. We used web-based questionnaires to test the effect of each of the three factors separately. Our results support the hypothesis that when breach of contract cues an exploitation schema, people become angry, offended, and inclined to retaliate even when retaliation is costly. This theory offers a useful advance insofar it explains why victims of breach demand more than similarly situated tort victims and why breaches to engorge gain are perceived to be more immoral than breaches to avoid loss. In general, the sucker theory provides an explanatory framework for recent experimental work showing that individuals view breach as a moral harm. We describe the implications of this theory for doctrinal problems like liquidated damages, willful breach, and promissory estoppel, and we suggest an agenda for further research.
The paper is a further extension of tons of work on reciprocity in the law, as well as Tess’s own work on the “sucker norm.” I think it adds a unique contribution to the contracts literature in part because it suggests that studying parties’ behavior in one-shot contracts is worth the investment, and thus challenges the views of relational contract theorists, who hold that such discrete contracts aren’t worth the paper they are printed on.
The paper will be out to the law reviews in the next week. We welcome any reader comments!