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Resistance to truthful revelation in bargaining: Persistent bid shading and the play of dominated strategies

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  • Parco, James E.
  • Murphy, Ryan O.
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    Abstract

    We report results from a simultaneous bilateral bargaining experiment with attention to the effects of a settlement bonus on strategic decision-making behavior. In instances with a sufficiently large settlement bonus, truthful revelation emerges as the dominant strategy. However previous work (Parco & Rapoport, 2004) has experimentally tested this “Bonus Effect” and found that although the presence of a settlement bonus improves efficiency, behavior falls drastically short of the normative predictions. This finding illustrates the persistent tendency of decision makers to bid strategically, i.e. shading their bids, even when truthful revelation is a strictly dominant strategy. Herein we investigate the influence of the framing of information and look for ways to nudge decision makers toward making better choices in these strategic environments. Additional results from an adaptive reinforcement-based learning model are discussed as they relate to a potential innate bias for strategic misrepresentation even when contrary to self-interest and collective-interest.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Psychology.

    Volume (Year): 39 (2013)
    Issue (Month): C ()
    Pages: 154-170

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    Handle: RePEc:eee:joepsy:v:39:y:2013:i:c:p:154-170

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    Web page: http://www.elsevier.com/locate/joep

    Related research

    Keywords: Bilateral bargaining; Information framing; Truthful revelation; Sealed bid mechanism; k-double auction; Linear equilibrium strategy;

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    1. William T. Harbaugh & Kate Krause & Lise Vesterlund, 2003. "Learning to Bargain," University of Oregon Economics Department Working Papers 2004-9, University of Oregon Economics Department, revised 01 Nov 2003.
    2. Jason F. Shogren, 2006. "A Rule of One," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(5), pages 1147-1159.
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    8. Todd L. Cherry & Thomas Crocker & Jason F. Shogren, 2001. "Rationality Spillovers," Working Papers 01-02, Department of Economics, Appalachian State University.
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    14. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    15. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
    16. William Vickrey, 1961. "Counterspeculation, Auctions, And Competitive Sealed Tenders," Journal of Finance, American Finance Association, vol. 16(1), pages 8-37, 03.
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