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A Behavioral Model of Bargaining with Endogenous Types

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    Abstract

    We enrich a simple two-person bargaining model by introducing "behavioral types" who concede more slowly than does the average person in the economy. The presence of behavioral types profoundly influences the choices of optimizing types. In equilibrium, concessions are calculated to induce "reciprocity": a substantial concession by player i is followed by a period in which j is much more likely to make a concession than usual. This favors concessions by i that are neither very small nor large enough to end the bargaining immediately. A key difference from the traditional method of perturbing a game is that the actions of our behavioral types are not specified in absolute terms, but relative to the norm in the population. Thus their behavior is determined endogenously as part of a social equilibrium.

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    File URL: http://cowles.econ.yale.edu/P/cd/d14a/d1446.pdf
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    Bibliographic Info

    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1446.

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    Length: 59 pages
    Date of creation: Nov 2003
    Date of revision:
    Handle: RePEc:cwl:cwldpp:1446

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    Keywords: Bargaining; Reputation; Endogenous type;

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    1. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Fudenberg, Drew & Kreps, David M, 1987. "Reputation in the Simultaneous Play of Multiple Opponents," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 541-68, October.
    3. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
    4. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
    5. Drew Fudenberg & David Kreps & David K. Levine, 1988. "On the Robustness of Equilibrium Refinements," Levine's Working Paper Archive 227, David K. Levine.
    6. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    7. Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002. "Bargaining with incomplete information," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945 Elsevier.
    8. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
    9. Lones Smith & Ennio Stacchetti, 2002. "Aspirational Bargaining," Game Theory and Information 0201003, EconWPA.
    10. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
    11. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
    12. Chatterjee, Kalyan & Samuelson, Larry, 1987. "Bargaining with Two-Sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Wiley Blackwell, vol. 54(2), pages 175-92, April.
    13. Jeremy Bulow & Paul Klemperer, 1997. "The Generalized War of Attrition," NBER Working Papers 5872, National Bureau of Economic Research, Inc.
    14. Hendricks, Ken & Weiss, Andrew & Wilson, Charles A, 1988. "The War of Attrition in Continuous Time with Complete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 663-80, November.
    15. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
    16. Fudenberg, D., 1991. "Explaining Cooperatiob and Commitment in Repeated Games," Working papers 590, Massachusetts Institute of Technology (MIT), Department of Economics.
    17. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 575-95, October.
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    Cited by:
    1. Susan Athey & Kyle Bagwell, 2008. "Collusion With Persistent Cost Shocks," Econometrica, Econometric Society, vol. 76(3), pages 493-540, 05.
    2. Eerola, Essi & Määttänen, Niku & Poutvaara, Panu, 2004. "Citizens Should Vote on Secession," Discussion Papers 939, The Research Institute of the Finnish Economy.
    3. Dilip Abreu & David G. Pearce, 2006. "Reputational Wars of Attrition with Complex Bargaining Postures," Levine's Working Paper Archive 122247000000001218, David K. Levine.
    4. Lones Smith & Ennio Stacchetti, 2002. "Aspirational Bargaining," Game Theory and Information 0201003, EconWPA.

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