Bargaining with Promises

A motivating employment environment benefi ts the satisfaction, productivity and welfare of employees, and it is the key to the success of an organization. We experimentally examine the effects of employees' promises on boosting the wage and effort level in the workplace. Employees make a non-binding promise along with a claimed wage in a gift-exchange game. The "claim and promise" setup allows us to test reciprocity in the "gift exchange" between employers and employees and the guilt-aversion theory in promise-keeping. We find that when the employer accepts and provides at least the claimed wage, the employee reciprocates by keeping his promise or exerting an even higher level of effort. However, when the employer offers a wage lower than the claimed wage, the employee retaliates by breaking the promise. The main results hold when employees must perform a real-effort task. In the real-effort paradigm, the negotiation between employers and employees anchoring on ability is successful. In both stated and real effort paradigms, the wage, effort level, and final social payoffs are higher in the accept scenario of the "claim and promise" treatment compared to the baseline. We use pupil dilation and eye-tracking lookup patterns to help assess guilt and reciprocity dynamically and test the psychological game theory model.