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Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis

Michael J. Seiler

Framed Field Experiments from The Field Experiments Website

Abstract: We test the disjunctive hypothesis as it relates to mortgage contracts and find that a liquidated damages clause shifts one's view of a mortgage from a promise to perform to either a promise to perform or pay compensatory damages. However, when a strategic mortgage default is responsible for the breach, the perceived immorality of this action overwhelms the liquidated damages clause effect in support of the disjunctive thesis. We also find that people's conscious "experimentally stated preference" moral stance on installment loan (mortgages, auto loans, credit card debt and even cell phone contracts) default significantly differs from their subconscious "experimentally revealed preference" moral stance indicating a difference between what people say they believe and what they actually believe.

New Economics Papers: this item is included in nep-ure
Date: 2017
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