Inequality aversion causes equal or unequal division in alternating-offer bargaining
AbstractThis note presents a solution to Rubinstein (1982)'s open-ended, alternating-offer bargaining problem for two equally patient bargainers that exhibit similar degrees of inequality aversion. Inequality-averse bargainers may perceive envy if being worse off and guilt if being better off, but they still reach agreement in the first period under complete information. If the perceived guilt is strong, then the inequality-averse bargainers split the bargaining surplus equally regardless of their degree of envy. If guilt is weak, then the agreed split is tilted away from the Rubinstein division towards a more unequal split. Envy and weak guilt have opposite effects on the bargaining outcome, and envy has a greater marginal impact than weak guilt. Similarly inequality-averse bargainers agree on the Rubinstein division if the strength of envy equals the discounted strength of guilt. As both bargainers sensation of inequality aversion diminishes, the bargaining outcome converges to the Rubinstein division.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 40764.
Date of creation: 06 Jul 2013
Date of revision:
alternating offers; bargaining; bargaining power; behavioral economics; envy; equity; fairness; guilt; negotiation; social preferences;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D3 - Microeconomics - - Distribution
- 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-2013-07-15 (All new papers)
- NEP-EVO-2013-07-15 (Evolutionary Economics)
- NEP-EXP-2013-07-15 (Experimental Economics)
- NEP-GTH-2013-07-15 (Game Theory)
- NEP-MIC-2013-07-15 (Microeconomics)
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.:
- Kohler, Stefan, 2011.
"Altruism and fairness in experimental decisions,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 80(1), pages 101-109.
- Stefan Kohler, 2005. "Fairness vs. Social Welfare in Experimental Decisions," Economics Working Papers ECO2005/11, European University Institute.
- Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics 20650, University of Munich, Department of Economics.
- 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.
- Maria Montero, 2007.
"Inequity Aversion May Increase Inequity,"
Royal Economic Society, vol. 117(519), pages C192-C204, 03.
- Ana Mauleon & Vincent Vannetelbosch, 2013.
"Relative Concerns and Delays in Bargaining with Private Information,"
MDPI, Open Access Journal, vol. 4(3), pages 329-338, June.
- MAULEON, Ana & VANNETELBOSCH, Vincent, . "Relative concerns and delays in bargaining with private information," CORE Discussion Papers RP -2482, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- MAULEON, Ana & VANNETELBOSCH, Vincent, 2013. "Relative concerns and delays in bargaining with private information," CORE Discussion Papers 2013034, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Maria Montero, 2008.
"Altruism, Spite and Competition in Bargaining Games,"
Theory and Decision,
Springer, vol. 65(2), pages 125-151, September.
- Maria Montero, 2005. "Altruism, Spite and Competition in Bargaining Games," Game Theory and Information 0512004, EconWPA.
- Jacob K. Goeree & Charles A. Holt, .
"Asymmetric Inequality Aversion and Noisy Behavior in Alternating-Offer Bargaining Games,"
Virginia Economics Online Papers
329, University of Virginia, Department of Economics.
- Goeree, Jacob K. & Holt, Charles A., 2000. "Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games," European Economic Review, Elsevier, vol. 44(4-6), pages 1079-1089, May.
- Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
- Rubinstein, Ariel, 1982.
"Perfect Equilibrium in a Bargaining Model,"
Econometric Society, vol. 50(1), pages 97-109, January.
- Kohler, Stefan, 2012. "More fair play in an ultimatum game after resettlement in Zimbabwe: A field experiment and a structural model," MPRA Paper 40248, University Library of Munich, Germany.
- Fehr, Ernst & Schmidt, Klaus M., 1998.
"A Theory of Fairness, Competition and Cooperation,"
CEPR Discussion Papers
1812, C.E.P.R. Discussion Papers.
- 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.
- Jonathan Tan & Friedel Bolle, 2006. "On the Relative Strengths of Altruism and Fairness," Theory and Decision, Springer, vol. 60(1), pages 35-67, 02.
- Abigail Barr & Chris Wallace & Jean Ensminger & Joseph Henrich & Clark Barrette & Alexander Bolyanatz & Juan Camilo Cardenas & Michael Gurven & Edwins Gwako & Carolyn Lesorogol & Frank Marlowe & Richa, 2009.
"Homo Æqualis: A Cross-Society Experimental Analysis of Three Bargaining Games,"
CSAE Working Paper Series
2009-02, Centre for the Study of African Economies, University of Oxford.
- Abigail Barr & Jennifer Hill, 2009. "Homo Æqualis: A Cross-Society Experimental Analysis of Three Bargaining Games," DOCUMENTOS CEDE 005427, UNIVERSIDAD DE LOS ANDES-CEDE.
- Abigail Barr & Chris Wallace, 2009. "Homo Aequalis: A Cross-Society Experimental Analysis of Three Bargaining Games," Economics Series Working Papers 422, University of Oxford, Department of Economics.
- Dorothea Herreiner & Clemens Puppe, 2009.
"Envy Freeness in Experimental Fair Division Problems,"
Theory and Decision,
Springer, vol. 67(1), pages 65-100, July.
- Dorothea K. Herreiner & Clemens Puppe, 2004. "Envy Freeness in Experimental Fair Division Problems," Bonn Econ Discussion Papers bgse28_2004, University of Bonn, Germany.
- Bellemare, C. & Kroger, S. & Soest, A.H.O. van, 2008.
"Measuring inequity aversion in a heterogeneous population using experimental decisions and subjective probabilities,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-376716, Tilburg University.
- Charles Bellemare & Sabine Kröger & Arthur van Soest, 2008. "Measuring Inequity Aversion in a Heterogeneous Population Using Experimental Decisions and Subjective Probabilities," Econometrica, Econometric Society, vol. 76(4), pages 815-839, 07.
- Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
- Roth, Alvin E, 1985. "A Note on Risk Aversion in a Perfect Equilibrium Model of Bargaining," Econometrica, Econometric Society, vol. 53(1), pages 207-11, January.
- 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.
- Kohler, Stefan, 2012. "Guilt causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40760, University Library of Munich, Germany.
- Engelmann, Dirk, 2012. "How not to extend models of inequality aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 81(2), pages 599-605.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.