Contracts are complementary promises
Once we understand promises, contracts between agents now become really simple to express. They are a set of complementary conditional promises: “If you do this, I will promise that”. In our example this looks like the following.
- “If you promise to pay me, I will promise to bring you coffee.”
- “If you promise to bring me coffee, I will promise to pay you.”
If one party does not keep its end of the bargain, the other party is free to withdraw from their part of the deal. Of course there is the complication that somebody has to deliver first: do you get coffee first, or do you have to pay first? This requires trust. As you are probably aware, both types of contract exist in real life. In fact you can find more complicated versions as well.
It is typical to have additional promises for any deviations from the happy path. An example would be: “If you do not pay for your coffee, I promise to call the police”. This is a simple approach. We will discuss later how we can model trust and trust violations.
One way to sum it up is by this question:
What do I do, what do you do, what do I do if you don’t?
This was the longest English sentence I made that only has monosyllabic words. I had a rap song produced from it.