Illustrated Examples of the Effects of Risk Preferences and Expectations on Bargaining Outcomes
AbstractThe author highlights bargaining examples that use expected utility theory. Bargainer payoffs in the event of a dispute are represented by a simple lottery. Expectations are assumed to affect a bargainer's subjective probabilities over lottery outcomes, and risk preferences affect the expected utility of a given lottery. Risk preferences and/or expectations are predicted to influence both negotiated outcomes and the likelihood of a bargaining impasse. The analysis shows that, ceteris paribus , risk aversion or pessimism, or both, will cause a bargainer to capture less of the pie in negotiations. Similarly, risk-loving and optimistic bargainers are more likely to experience impasse because of the disappearance of the contract zone. The results are intuitive, can be shown graphically and algebraically, and provide upper-level students with engaging examples that show the usefulness of expected utility theory.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal The Journal of Economic Education.
Volume (Year): 34 (2003)
Issue (Month): 2 (January)
Contact details of provider:
Web page: http://www.tandfonline.com/VECE20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Charness, Gary & Kuhn, Peter J., 2010.
"Lab Labor: What Can Labor Economists Learn from the Lab?,"
IZA Discussion Papers
4941, Institute for the Study of Labor (IZA).
- Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, Elsevier.
- Gary Charness & Peter J. Kuhn, 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," NBER Working Papers 15913, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.