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Self-Serving Biases in Bargaining

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Author Info
Kohnz, Simone
Abstract

There is strong evidence that in bargaining situations with asymmetric outside options people exhibit self-serving biases concerning their fairness judgements. Moreover, psychological literature suggests that this can be a driving force of bargaining impasse. This paper extends the notion of inequity aversion to incorporate self-serving biases due to asymmetric outside options and analyses whether this leads to bargaining breakdown. I distinguish between sophisticated and naive agents, that is, those agents who understand their bias and those who do not. I find that breakdown in ultimatum bargaining results from naiveté of the proposers.

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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 899.

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Date of creation: Mar 2006
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Handle: RePEc:lmu:muenec:899

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Related research
Keywords: fairness perceptions; self-serving bias; inequity aversion; ultimatum bargaining; outside options;

Find related papers by JEL classification:
A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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  1. 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. [Downloadable!] (restricted)
  2. Knez Marc J. & Camerer Colin F., 1995. "Outside Options and Social Comparison in Three-Player Ultimatum Game Experiments," Games and Economic Behavior, Elsevier, vol. 10(1), pages 65-94, July. [Downloadable!] (restricted)
  3. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
    Other versions:
  4. Pamela Schmitt, 2004. "On Perceptions of Fairness: The Role of Valuations, Outside Options, and Information in Ultimatum Bargaining Games," Experimental Economics, Springer, vol. 7(1), pages 49-73, February. [Downloadable!] (restricted)
  5. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August. [Downloadable!] (restricted)
    Other versions:
  6. Babcock, Linda & Loewenstein, George, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-26, Winter. [Downloadable!] (restricted)
  7. James Konow, 2000. "Fair Shares: Accountability and Cognitive Dissonance in Allocation Decisions," American Economic Review, American Economic Association, vol. 90(4), pages 1072-1091, September. [Downloadable!] (restricted)
  8. Armin Falk & Ernst Fehr & Urs Fischbacher, . "Driving Forces of Informal Sanctions," IEW - Working Papers iewwp059, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  9. Ted O'Donoghue & Matthew Rabin, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March. [Downloadable!] (restricted)
  10. Gary E. Bolton & Axel Ockenfels, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March. [Downloadable!] (restricted)
  11. Kagel, John H. & Kim, Chung & Moser, Donald, 1996. "Fairness in Ultimatum Games with Asymmetric Information and Asymmetric Payoffs," Games and Economic Behavior, Elsevier, vol. 13(1), pages 100-110, March. [Downloadable!] (restricted)
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