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Guilt causes equal or unequal division in alternating-offer bargaining

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  • Kohler, Stefan

Abstract

Parties in a bargaining situation may perceive guilt, a utility loss caused by receiving the larger share that is modeled in some social preferences. I extend Rubinstein (1982)'s solution of the open-ended alternating-offer bargaining problem for self-interested bargainers to a game with equally patient bargainers that exhibit a similar degree of guilt. The bargaining parties still reach agreement in the first period. If guilt is strong, they split the bargaining surplus equally. In contrast, if guilt is weak, the bargaining outcome is tilted away from the Rubinstein division towards a more unequal split. As both bargainers sensation of guilt diminishes, the bargaining outcome converges to the Rubinstein division.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40760.

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Date of creation: 10 Sep 2012
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Handle: RePEc:pra:mprapa:40760

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Keywords: alternating offers; bargaining; bargaining power; behavioral economics; equity; fairness; guilt; inequality aversion; negotiation; social preferences;

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  1. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
  2. Kohler, Stefan, 2011. "Altruism and fairness in experimental decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 101-109.
  3. Arnaud De Bruyn & Gary E. Bolton, 2008. "Estimating the Influence of Fairness on Bargaining Behavior," Management Science, INFORMS, vol. 54(10), pages 1774-1791, October.
  4. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  6. Maria Montero, 2005. "Altruism, Spite and Competition in Bargaining Games," Game Theory and Information 0512004, EconWPA.
  7. Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
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Cited by:
  1. Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
  2. Kohler, Stefan, 2013. "Inequality aversion causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40764, University Library of Munich, Germany.
  3. Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, Open Access Journal, vol. 3(3), pages 119-137, September.

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