What Price Compromise? Testing a Possibly Surprising Impliction of Nash Bargaining Theory
AbstractThis paper provides a very simple experimental test of a prediction of Nash Bargaining Theory that seems counterintuitive. The context is a simple bargaining problem between two players who have to agree a choice from three alternatives. One alternative favors one player and a second favors the other. The third is a fair compromise, but is excluded as an agreed choice by Nash Bargaining Theory. Our experimental results show that agreement on this third outcome occurs rather often. So the Nash theory is not well-supported by our evidence, although neither is a Strategic explanation of the data. The Nash-precluded outcome appeals because of its compromise nature; indeed, players are prepared to pay a price which is (according to the Nash theory) irrationally high, in order to reach a fair compromise.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 05/05.
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Other versions of this item:
- John Bone & John D Hey & John Suckling, 2006. "What Price Compromise? Testing a Possibly Surprising Implication of Nash Bargaining Theory," Discussion Papers 06/18, Department of Economics, University of York.
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-24 (All new papers)
- NEP-CBE-2005-04-24 (Cognitive & Behavioural Economics)
- NEP-EXP-2005-04-24 (Experimental Economics)
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