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Bargaining Outcomes as the Result of Coordinated Expectations: An Experimental Study of Sequential Bargaining

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  • Jeffrey Carpenter

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Abstract

Experimental studies of two-person sequential bargaining demonstrate that the concept of subgame perfection is not a reliable point predictor of actual behavior. Alternative explanations argue that 1) fairness influences outcomes and 2) that bargainer expectations matter and are likely not to be coordinated at the outset. This paper examines the process by which bargainers in two-person dyads coordinate their expectations on a bargaining convention and how this convention is supported by the seemingly empty threat of rejecting positive but small subgame perfect offers. To organize the data from this experiment, we develop a Markov model of adaptive expectations and bounded rationality. The model predicts actual behavior quite closely.

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File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0204.pdf
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Bibliographic Info

Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0204.

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Length: 31 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:mdl:mdlpap:0204

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Related research

Keywords: Sequential Bargaining; Experiment; Convention; Fairness; Finite Markov Chain; Bounded Rationality;

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Cited by:
  1. Carpenter, Jeffrey & Rudisill, McAndrew, 2003. "Fairness, escalation, deference, and spite: strategies used in labor-management bargaining experiments with outside options," Labour Economics, Elsevier, vol. 10(4), pages 427-442, August.
  2. Jeffrey Carpenter & Peter Hans Matthews, 2003. "No Switchbacks: Rethinking Aspiration-Based Dynamics in the Ultimatum Game," Middlebury College Working Paper Series, Middlebury College, Department of Economics 0218r, Middlebury College, Department of Economics.
  3. Carpenter, Jeffrey P., 2003. "Is fairness used instrumentally? Evidence from sequential bargaining," Journal of Economic Psychology, Elsevier, Elsevier, vol. 24(4), pages 467-489, August.

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