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

Authors

Michael J. Seiler, William & MaryFollow

Document Type

Article

Department/Program

Business

Journal Title

REAL ESTATE ECONOMICS

Pub Date

2017

Volume

45

Issue

1

Abstract

We test the disjunctive thesis as it relates to mortgage contracts and find that a liquidated damages clause shifts ones 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.

Recommended Citation

Seiler, Michael J., Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis (2017). REAL ESTATE ECONOMICS, 45(1).
https://doi.org/10.1111/1540-6229.12142

DOI

https://doi.org/10.1111/1540-6229.12142