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Threats and demonstrations of power: experimental results on bilateral bargaining

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Author Info
Noemí Navarro () (Department of Economic Theory, Universidad de Málaga)
Róbert Veszteg () (Institute of Social and Economic Research, Osaka University)

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Abstract

We test the empirical effectiveness of threats in equilibrating bargaining power in simple bilateral bargaining games. Our experimental design is based on the two-player versions of the multibidding game (Pérez-Castrillo and Wettstein, 2001) and the bid-and-propose game (Navarro and Perea, 2005) that build on the ultimatum game and balance parties' bargaining power by auctioning the role of the proposer in the first stage. We show that, while both mechanisms implement the fair split in their subgame-perfect Nash-equilibrium, they induce different results in the laboratory. Subjects do not react to threats that lie off the the equilibrium path in the expected way, even if these threats are theoretically credible as they belong to the subgame-perfect Nash equilibrium. In particular, it seems that subjects feel the need to show their bargaining power as if punishment that never happens could not constitute a credible threat.

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File URL: http://webdeptos.uma.es/THEconomica/malagawpseries/Papers/METCwp2008-11.pdf
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Publisher Info
Paper provided by Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center in its series Working Papers with number 2008-11.

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Length: 19 pages
Date of creation: Oct 2008
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Handle: RePEc:mal:wpaper:2008-11

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Related research
Keywords: bargaining; experiments; fairness; Myerson value; ultimatum game;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Noemí Navarro & Andrés Perea, 2001. "Bargaining In Networks And The Myerson Value," Economics Working Papers we016121, Universidad Carlos III, Departamento de Economía. [Downloadable!]
  2. Carpenter, Jeffrey P., 2003. "Is fairness used instrumentally? Evidence from sequential bargaining," Journal of Economic Psychology, Elsevier, vol. 24(4), pages 467-489, August. [Downloadable!] (restricted)
  3. Perez-Castrillo, David & Wettstein, David, 2001. "Bidding for the Surplus : A Non-cooperative Approach to the Shapley Value," Journal of Economic Theory, Elsevier, vol. 100(2), pages 274-294, October. [Downloadable!] (restricted)
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  4. 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:
  5. 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)
  6. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December. [Downloadable!] (restricted)
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