Cheap promises: Evidence from loan repayment pledges in an online experiment

Cheap promises: Evidence from loan repayment pledges in an online experiment

7 July, 2020    

Across domains, people struggle to follow through on their commitments. This can happen for many reasons, including dishonesty, forgetfulness, or insufficient intrinsic motivation. Social scientists have explored the reasons for persistent failures to follow through, suggesting that eliciting explicit promises can be an effective way to motivate action. This paper presents a field experiment that tests the effect of explicit promises, in the form of “honor pledges,” on loan repayment rates. The experiment was conducted with LendUp, an online lender, and targeted 4,883 first-time borrowers with the firm. Individuals were randomized into four groups, with the following experimental treatments: (1) having no honor pledge to complete (control); (2) signing a given honor pledge; (3) re-typing the same honor pledge as in (2) before signing; and (4) coming up with a personal honor pledge to type and sign. I also randomized whether or not borrowers were reminded of the honor pledge they signed prior to the repayment deadline. The results suggest that the honor pledge treatments had minimal impacts on repayment, and that reminders of the pledges were similarly ineffective. This suggests that borrowers who fail to repay loans do so not because of dishonesty or behavioral biases, but because they suffer from true financial hardship and are simply unable to repay.

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