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The Compromise Game: Two-Sided Adverse Selection in the Laboratory

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Author Info
Juan D. Carrillo
Thomas R. Palfrey
Abstract

We analyze a game of two-sided private information where players have privately known "strengths" and can decide to fight or compromise. If either chooses to fight, the stronger player receives a high payoff and the weaker player receives a low payoff. If both choose to compromise, each player receives an intermediate payoff. The only equilibrium is for players to always fight. In our experiment, we observe frequent compromise, more fighting the lower the compromise payoff and less fighting by first than second movers. We explore several theories of cognitive limitations in an attempt to understand these anomalous findings. (JEL C91, D82)

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Publisher Info
Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 1 (2009)
Issue (Month): 1 (February)
Pages: 151-81
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Handle: RePEc:aea:aejmic:v:1:y:2009:i:1:p:151-81

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This page was last updated on 2009-12-22.

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