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Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining

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  • Stefan Kohler

    ()
    (Institute for Social Medicine, Epidemiology and Health Economics, Charité University Medical Center, Luisenstrae 57, 10117 Berlin, Germany)

Abstract

Two deviations of alternating-offer bargaining behavior from economic theory are observed together, yet have been studied separately. Players who could secure themselves a large surplus share if bargainers were purely self-interested incompletely exploit their advantage. Delay in agreement occurs even if all experimentally controlled information is common knowledge. This paper rationalizes both regularities coherently by modeling heterogeneous social preferences, either self-interest or envy, of one bargaining party as private information in a three period game of bargaining and preference screening and signaling.

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Bibliographic Info

Article provided by MDPI, Open Access Journal in its journal Games.

Volume (Year): 3 (2012)
Issue (Month): 3 (September)
Pages: 119-137

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Handle: RePEc:gam:jgames:v:3:y:2012:i:3:p:119-137:d:20059

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Related research

Keywords: alternating-offer bargaining; asymmetric information; envy; fairness; inequality aversion; uncertainty;

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References

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  1. G. Bolton, 2010. "A comparative model of bargaining: theory and evidence," Levine's Working Paper Archive 263, David K. Levine.
  2. Cramton, Peter C, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 59(1), pages 205-25, January.
  3. Jonathan Tan & Friedel Bolle, 2006. "On the Relative Strengths of Altruism and Fairness," Theory and Decision, Springer, vol. 60(1), pages 35-67, 02.
  4. Srivastava, Joydeep, 2001. "The Role of Inferences in Sequential Bargaining with One-Sided Incomplete Information: Some Experimental Evidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 85(1), pages 166-187, May.
  5. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, vol. 114(2), pages 178-181.
  6. Stefan Kohler, 2005. "Fairness vs. Social Welfare in Experimental Decisions," Economics Working Papers ECO2005/11, European University Institute.
  7. Kohler, Stefan, 2012. "Guilt causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40760, University Library of Munich, Germany.
  8. Grossman, Sanford J. & Perry, Motty, 1986. "Sequential bargaining under asymmetric information," Journal of Economic Theory, Elsevier, vol. 39(1), pages 120-154, June.
  9. Driesen Bram & Perea Andrés & Peters Hans, 2009. "Alternating offers bargaining with loss aversion," Research Memorandum 001, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  10. J. Ochs & Alvin E. Roth, 1998. "An experimental study of sequential bargaining," Levine's Working Paper Archive 331, David K. Levine.
  11. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  12. von Siemens, Ferdinand A., 2009. "Bargaining under incomplete information, fairness, and the hold-up problem," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 486-494, August.
  13. Maria Montero, 2007. "Inequity Aversion May Increase Inequity," Economic Journal, Royal Economic Society, vol. 117(519), pages C192-C204, 03.
  14. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  15. Jacob K. Goeree & Charles A. Holt, . "Asymmetric Inequality Aversion and Noisy Behavior in Alternating-Offer Bargaining Games," Virginia Economics Online Papers 329, University of Virginia, Department of Economics.
  16. Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
  17. Ausubel, Lawrence M. & Deneckere, Raymond J., 1989. "A direct mechanism characterization of sequential bargaining with one-sided incomplete information," Journal of Economic Theory, Elsevier, vol. 48(1), pages 18-46, June.
  18. Sobel, Joel & Takahashi, Ichiro, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 50(3), pages 411-26, July.
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Citations

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Cited by:
  1. Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
  2. Kohler, Stefan, 2013. "Inequality aversion causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40764, University Library of Munich, Germany.
  3. Ozan Aksoy & Jeroen Weesie, 2013. "Hierarchical Bayesian Analysis of Biased Beliefs and Distributional Other-Regarding Preferences," Games, MDPI, Open Access Journal, vol. 4(1), pages 66-88, February.

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