Contract breach with overconfident expectations: Experimental evidence on reference-dependent preferences

• 成果类型: Article
• 署名作者: Fischer, Sabine; Grosch, Kerstin
• 署名单位: Vienna University of Economics & Business
• 刊物名称: GAMES AND ECONOMIC BEHAVIOR
• ISSN/ISSBN: 0899-8256
• DOI: 10.1016/j.geb.2025.05.012
• 发表日期: 2025
• 页码: 145-163
• 关键词: Contract compliance; overconfidence; loss aversion; reference-dependent preferences; lab experiment

摘要

This study examines the effect of agents' overconfident expectations in their production on their contract breach. Drawing on a reference-dependent framework, we theoretically deduce propositions for compliance to agreements where an agent exhibits overconfidence and loss aversion. We further conduct a lab experiment with a multiple-stage design and find that overconfident agents are more likely to breach the contract than non-overconfident agents. Moreover, overconfident agents breach more often and to a greater extent with increasing loss aversion. We also test the impact of a non-deterministic environment (shock condition) where payoff misestimation can be masked compared to a deterministic environment (no-shock condition). Agents breach more often in the shock condition, but breach extent remains unaffected. Results are mostly in line with the theoretical framework. In a treatment, we manipulate agents' overconfidence exogenously and use it as an instrument to establish causality.