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Power Asymmetry and Escalation in Bargaining

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  • Ulrike Vollstädt

    () (International Max Planck Research School on Adapting Behavior in a Fundamentally Uncertain World, University of Jena)

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    Abstract

    Bargaining is prevalent in economic interactions. Under complete information, game theory predicts efficient bargaining outcomes (immediate acceptance of first offer) (see Rubinstein, 1982). However, continuous rejections of offers leading to inefficient delays (escalation) have regularly been found in previous bargaining experiments even under complete information (see Roth, 1995). I test experimentally (1) whether power asymmetry leads to more escalation in bargaining and (2) whether perspective-taking reduces escalation. I find that power asymmetry increases escalation, but that perspective-taking does not reduce escalation.

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    File URL: http://pubdb.wiwi.uni-jena.de/pdf/wp_2011_054.pdf
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    Bibliographic Info

    Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2011-054.

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    Date of creation: 07 Nov 2011
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    Handle: RePEc:jrp:jrpwrp:2011-054

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    Keywords: two-person bargaining experiment; asymmetric power; escalation; perspective-taking;

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    1. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
    2. James C. Cox & Elinor Ostrom & James M. Walker, 2011. "Bosses and Kings: Asymmetric Power in Paired Common Pool and Public Good Games," Experimental Economics Center Working Paper Series 2011-06, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Aug 2012.
    3. Nikos Nikiforakis & Charles N. Noussair & Tom Wilkening, 2011. "Normative Conflict & Feuds: The Limits of Self-Enforcement," Department of Economics - Working Papers Series 1120, The University of Melbourne.
    4. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
    5. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
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