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An Experimental Study of Buyer-Seller Negotiation with One-Sided Incomplete Information and Time Discounting

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Author Info

  • Amnon Rapoport

    (University of Arizona, Tucson, Arizona 85721)

  • Ido Erev

    (Technion-Israel Institute of Technology, Haifa 32000, Israel)

  • Rami Zwick

    (The University of Auckland, Auckland, New Zealand)

Abstract

We study a multiperiod bargaining mechanism in which a seller negotiates with a buyer over the price of an indivisible good. It is common knowledge that the good has zero value to the seller. Its value to the buyer is privately known, distributed independently of the seller's value according to a distribution that is common knowledge. Bargaining proceeds as follows. The seller sets a price and offers the buyer an opportunity to purchase the good. The buyer either waits for at least one more period or agrees to purchase the good at the given price. If the buyer refuses the offer, then the process is repeated with seller making a new offer on the next period. Our findings reveal several behavioral regularities, which do not support the sequential equilibrium for this bargaining mechanism. In line with recent developments in behavioral decision theory and game theory, which assume bounded rationality, we find that subjects follow simple rules of thumb in choosing strategies, reflected in the behavioral consistencies observed in the study.

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File URL: http://dx.doi.org/10.1287/mnsc.41.3.377
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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 41 (1995)
Issue (Month): 3 (March)
Pages: 377-394

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Handle: RePEc:inm:ormnsc:v:41:y:1995:i:3:p:377-394

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Related research

Keywords: negotiation; game theory; experimental economics; time discounting; one-sided incomplete information;

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Cited by:
  1. Ralph-C Bayer, 2006. "Intertemporal Price Discrimination and Competition," School of Economics Working Papers 2006-06, University of Adelaide, School of Economics.
  2. Stahl, Dale O. & Haruvy, Ernan, 2008. "Subgame perfection in ultimatum bargaining trees," Games and Economic Behavior, Elsevier, vol. 63(1), pages 292-307, May.
  3. Adrian de Groot Ruiz & Theo Offerman & Sander Onderstal, 2011. "An Experimental Study of Credible Deviations and ACDC," Tinbergen Institute Discussion Papers 11-153/1, Tinbergen Institute.
  4. Adrian de Groot Ruiz & Theo Offerman & Sander Onderstal, 2011. "An Experimental Study of Credible Deviations and ACDC," Tinbergen Institute Discussion Papers 11-153/1, Tinbergen Institute.
  5. Adrian Groot Ruiz & Theo Offerman & Sander Onderstal, 2014. "For those about to talk we salute you: an experimental study of credible deviations and ACDC," Experimental Economics, Springer, vol. 17(2), pages 173-199, June.
  6. Ghosh, Dipankar, 2000. "Complementary arrangements of organizational factors and outcomes of negotiated transfer price," Accounting, Organizations and Society, Elsevier, vol. 25(7), pages 661-682, October.
  7. 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.
  8. Reynolds, Stanley S., 2001. "Multi-period bargaining: asymmetric information and risk aversion," Economics Letters, Elsevier, vol. 72(3), pages 309-315, September.

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