Self-Serving Biases in Bargaining
AbstractThere 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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Bibliographic InfoPaper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 899.
Date of creation: Mar 2006
Date of revision:
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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-18 (All new papers)
- NEP-CBE-2006-03-18 (Cognitive & Behavioural Economics)
- NEP-GTH-2006-03-18 (Game Theory)
- NEP-SOC-2006-03-18 (Social Norms & Social Capital)
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