Paper Promises

Imagine that a trusted friend made a promise to you, and then broke it. When confronted, he or she offers to compensate you in cash for their betrayal. Chances are, you wouldn’t consider it an acceptable trade. But if you both had written the promise on paper and turned it into a legal contract, the law would expect you to do just that.   

Tess Wilkinson-Ryan, a recent graduate of Penn’s doctoral program in psychology, devoted her dissertation research exploring this disjunction between people’s “moral intuition” about promises and the legal rule of contracts. “There’s a lot of legal theory about the extent to which a contract is a promise,” Wilkinson-Ryan says. “But in contract law there are no punitive damages. Even if someone breaches a contract for a reason people find morally reprehensible or problematic, the law doesn’t recognize it. The damages they have to pay are generally the same regardless of their reason for breach. Most people, however, think of a promise as binding yourself to do what you said you were going to do—not to pay the equivalent of the benefit you expected to confer.”

In a study that will be published in the Journal of Empirical Legal Studies, Wilkinson-Ryan asked subjects to read hypothetical breach of contract cases and assess appropriate damages for them. She found that the compensation they assigned varied as a function of their moral judgment of the case. Lower damages were levied in cases where a contract was breached to avoid a monetary loss caused by uncontrollable events and higher ones in cases where the contractor wanted to make more money elsewhere.

"People see a contract as a promise, and they think there is a special moral harm in breaking a promise that is separate from the loss incurred by not delivering on that promise." -Tess Wilkinson-Ryan

Also included in this paper is another study that suggests people respond more negatively to a harm caused by a broken contract than an identical harm caused by negligence. She presented subjects with two different versions of a breach of contract case. For example, in one scenario a contractor breaks his contract to refinish a floor to take another, more lucrative offer. In the other, the contract cannot be completed because a neighbor has caused a gas leak that prevents the contractor from entering the home. Subjects were told that the same amount of harm was caused in both scenarios, and they were asked to levy damages against the contractor in the first and against the neighbor in the second. Even though tort law—which would address the neighbor’s carelessness—does permit damages to reflect moral culpability, subjects levied higher damages against the contractor.

“These studies get to the idea that people see a contract as a promise,” Wilkinson-Ryan says, “and they think there is a special moral harm in breaking a promise that is separate from the loss incurred by not delivering on that promise.”

Wilkinson-Ryan, who received her juris doctor from Penn Law in 2005, first became interested in this subject when she spent a year during law school at the University of Chicago. “I learned about a nascent movement called behavioral law and economics,” she explains, “which seeks to challenge or rethink some of the assumptions about law and economics that say that people are rational actors.” She returned to Penn for her doctorate in psychology in part to work with Professor of Psychology Jonathan Baron. “He is a pioneer in research on the psychology of moral judgment,” Wilkinson-Ryan says, “and he is interested in applying these ideas to legal issues.”

Last year, she and Baron published a paper in the Journal of Legal Studies on a set of experiments exploring the conflict between moral intuitions and contemporary no-fault divorce laws. “People were concerned with the fact that there was no legal way to address violation of the marriage contract, and this got me thinking about actual contracts,” Wilkinson-Ryan says. “Because there’s obviously not as much psychological and emotional baggage with contracts as there is in divorce, I could devise a study that honed in on a comparison between moral intuitions and the legal regime.”

Since last fall, Wilkinson-Ryan has been the Sharswood Fellow in Law and Psychology at Penn Law, where she’s been preparing another study from her dissertation for potential publication. In it, subjects were asked to think about the effect of a liquidated damages clause—which specifies damages in case of a breach within the contract itself—on their moral intuitions. She found that they would break a contract with such a clause for a lesser profit than they would an otherwise identical contract for which the legal system would levy equal damages.

“If we think of the content of the promise as the text of the contract, this study gets at the idea that the social or moral norm of promising is different when the promise itself seems to include the expectation of breach,” Wilkinson-Ryan explains. “It seems less clear that each party expects the other to perform as specified.”
                       
Wilkinson-Ryan says her research is responsive to a body of legal and economic scholarship that argues that “the moral weight of the promise is not relevant to contracts. This view says that if you’ll gain more of a profit by breaking the contract, compensating the other party, and taking the better offer, you should do it.”

While she is not making any claims that contract law should be more or less responsive to moral intuitions, Wilkinson-Ryan hopes her research will generate empirical findings that test assumptions about how people actually approach contracts. “We think that people are self-interested and that they will always pursue the greatest benefit. My research shows a systematic pattern that looks quite different from the pattern of rational wealth maximization.”