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Bargaining with History Dependent Preferences

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  • Duozhe Li
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    Abstract

    We study perfect information bilateral bargaining game with an infinite alternating-offers procedure, in which we add an assumption of history dependent preference. A player will devalue a share which gives her strictly lower discounted utility than what she was offered in earlier stages of the bargaining, namely, a ``worse off'' outcome. In a strong version of the assumption, each player prefers impasse to any ``worse off'' outcome. We characterize the essentially unique subgame perfect equilibrium path under the assumption. The equilibrium entails considerable delay and efficiency loss. As the players become infinitely patient, the efficiency loss goes to one half, and the equilibrium share goes to Nash solution. The assumption can also be weakened. We provide a sufficient condition on the extent of devaluation under which the feature of the equilibrium from strong assumption remains

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    Bibliographic Info

    Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 516.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:nasm04:516

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    Keywords: Bargaining; Delay; History Dependent Preference; Endogenous Commitment;

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    1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
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    4. Nicholas Barberis & Ming Huang & Tano Santos, 2001. "Prospect Theory And Asset Prices," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 1-53, February.
    5. Dekel, Eddie, 1990. "Simultaneous offers and the inefficiency of bargaining: A two-period example," Journal of Economic Theory, Elsevier, vol. 50(2), pages 300-308, April.
    6. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
    7. Weibull, J├Ârgen W., 2000. "Testing Game Theory," Working Paper Series in Economics and Finance 382, Stockholm School of Economics, revised 11 Jan 2001.
    8. Abhinay Muthoo, . "A Bargaining Model Based on the Commitment Tactic," Economics Discussion Papers 420, University of Essex, Department of Economics.
    9. Philip J. Reny, 1992. "Rationality in Extensive-Form Games," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 103-118, Fall.
    10. van Damme, Eric, 1989. "Stable equilibria and forward induction," Journal of Economic Theory, Elsevier, vol. 48(2), pages 476-496, August.
    11. Ma, Ching-To Albert & Manove, Michael, 1993. "Bargaining with Deadlines and Imperfect Player Control," Econometrica, Econometric Society, vol. 61(6), pages 1313-39, November.
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    14. Fershtman Chaim & Seidmann Daniel J., 1993. "Deadline Effects and Inefficient Delay in Bargaining with Endogenous Commitment," Journal of Economic Theory, Elsevier, vol. 60(2), pages 306-321, August.
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    16. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July.
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    18. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
    19. Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, vol. 59(1), pages 78-95, February.
    20. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
    21. Perry Motty & Reny Philip J., 1993. "A Non-cooperative Bargaining Model with Strategically Timed Offers," Journal of Economic Theory, Elsevier, vol. 59(1), pages 50-77, February.
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    Cited by:
    1. Aleksandra Gregoric & Saso Polanec & Sergeja Slapnicar, 2008. "Pay me Right: Reference Values and Executive Compensation," LICOS Discussion Papers 22008, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

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