What Price Compromise? Testing a Possibly Surprising Implication of Nash Bargaining Theory
AbstractThis paper identifies, and tests experimentally, a prediction of Nash Bargaining Theory that may appear counterintuitive. The context is a simple bargaining problem in which two players have to agree a choice from three alternatives. One alternative favours one player and a second favours the other. The third is an apparently reasonable compromise, but is in fact precluded as an agreed choice by the axioms of Nash Bargaining Theory. Experimental results show that agreement on this third alternative occurs rather often. So the axiomatic Nash theory is not well-supported by our evidence. Our subjects' behaviour could be interpreted as the paying of an irrationally (according to the Nash theory) high price in order to reach a compromise agreement.
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Bibliographic InfoPaper provided by Department of Economics, University of York in its series Discussion Papers with number 06/18.
Date of creation: Aug 2006
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Experiments; Nash Bargaining Theory;
Other versions of this item:
- John Bone & John Hey & John Suckling, . "What Price Compromise? Testing a Possibly Surprising Impliction of Nash Bargaining Theory," Discussion Papers 05/05, 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-2006-10-14 (All new papers)
- NEP-CBE-2006-10-14 (Cognitive & Behavioural Economics)
- NEP-EXP-2006-10-14 (Experimental Economics)
- NEP-GTH-2006-10-14 (Game Theory)
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