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On the Strategic Use of Focal Points in Bargaining Situations

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  • Maarten C.W. Janssen

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    (Erasmus Universiteit Rotterdam)

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    Abstract

    This paper argues that the notion of focal points is important in understanding bargaining processes. Recent literature confines a discussion of the usefulness of the notion to coordination problems and when bargaining experiments result in outcomes that are inconsistent with a straightforward interpretation of economic theory, some notion of ‘fairness’ is invoked. This paper uses symmetry requirements to formalize the notion of focal points. By doing so, it explains the focality of equal split division and it re-interprets recent experimental evidence in bargaining games. Experimental economists should try to empirically disentangle the importance of focal points from other explanatory factors (such as fairness). One way to do so, would be to study modal (instead of average) responses more systematically. Future theoretical research should focus on the strategic implications of proposing a frame (focal point) to conceive of the bargaining problem.

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    Bibliographic Info

    Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 06-040/1.

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    Date of creation: 26 Apr 2006
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    Handle: RePEc:dgr:uvatin:20060040

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    Web page: http://www.tinbergen.nl

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    Keywords: Bargaining; Game Perceptions; Focal Points;

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    1. Binmore, Ken, et al, 1993. "Focal Points and Bargaining," International Journal of Game Theory, Springer, vol. 22(4), pages 381-409.
    2. Andreas Blume & Uri Gneezy, 1998. "An Experimental Investigation of Optimal Learning in Coordination Games," CIG Working Papers FS IV 98-12, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    3. Casajus, Andre, 2000. "Focal Points in Framed Strategic Forms," Games and Economic Behavior, Elsevier, vol. 32(2), pages 263-291, August.
    4. Andreas Blume, 1998. "Coordination and Learning with a Partial Language," CIG Working Papers FS IV 98-11, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
    5. Kerstin Pull, 2003. "Ultimatum Games and Wages: Evidence of an “Implicit Bargain”?," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 55(2), pages 161-171, April.
    6. Armin Falk & Michael Kosfeld, . "The Hidden Costs of Control," IEW - Working Papers 250, Institute for Empirical Research in Economics - University of Zurich.
    7. Crawford, Vincent P & Haller, Hans, 1990. "Learning How to Cooperate: Optimal Play in Repeated Coordination Games," Econometrica, Econometric Society, vol. 58(3), pages 571-95, May.
    8. Bacharach, M. & Bernasconi, M., 1995. "An Experimental Study of the Variable Frame Theory of Focal Points : Appendix," Economics Series Working Papers 99167, University of Oxford, Department of Economics.
    9. 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.
    10. Van Huyck, John, et al, 1995. "On the Origin of Convention: Evidence from Symmetric Bargaining Games," International Journal of Game Theory, Springer, vol. 24(2), pages 187-212.
    11. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
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