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Explaining Bargaining Impasse: The Role of Self-Serving Biases

  • Linda Babcock
  • George Loewenstein

The authors review studies conducted by themselves and coauthors that document a 'self-serving' bias in judgments of fairness and demonstrate that the bias is an important cause of impasse in negotiations. They discuss experimental evidence showing that (1) the bias causes impasse; (2) it is possible to reduce impasses by debiasing bargainers; and (3) the bias results from selective evaluation of information. The authors also review results from a field study of negotiations between teachers' unions and school boards in Pennsylvania that both document the fairness bias in a naturalistic setting and demonstrates its impact on strikes.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.11.1.109
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 11 (1997)
Issue (Month): 1 (Winter)
Pages: 109-126

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Handle: RePEc:aea:jecper:v:11:y:1997:i:1:p:109-26
Note: DOI: 10.1257/jep.11.1.109
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  1. Blount, Sally, 1995. "When Social Outcomes Aren't Fair: The Effect of Causal Attributions on Preferences," Organizational Behavior and Human Decision Processes, Elsevier, vol. 63(2), pages 131-144, August.
  2. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  3. Kagel, John H. & Kim, Chung & Moser, Donald, 1996. "Fairness in Ultimatum Games with Asymmetric Information and Asymmetric Payoffs," Games and Economic Behavior, Elsevier, vol. 13(1), pages 100-110, March.
  4. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-136, December.
  5. Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-43, December.
  6. Tracy, Joseph S, 1987. "An Empirical Test of an Asymmetric Information Model of Strikes," Journal of Labor Economics, University of Chicago Press, vol. 5(2), pages 149-73, April.
  7. Knez Marc J. & Camerer Colin F., 1995. "Outside Options and Social Comparison in Three-Player Ultimatum Game Experiments," Games and Economic Behavior, Elsevier, vol. 10(1), pages 65-94, July.
  8. Wade-Benzoni, Kimberly A. & Tenbrunsel, Ann E. & Bazerman, Max H., 1996. "Egocentric Interpretations of Fairness in Asymmetric, Environmental Social Dilemmas: Explaining Harvesting Behavior and the Role of Communication," Organizational Behavior and Human Decision Processes, Elsevier, vol. 67(2), pages 111-126, August.
  9. Alvin E Roth & J K Murnighan, 1997. "The rule of information in bargaining: an experimental study," Levine's Working Paper Archive 1631, David K. Levine.
  10. Card, David, 1990. "Strikes and Wages: A Test of an Asymmetric Information Model," The Quarterly Journal of Economics, MIT Press, vol. 105(3), pages 625-59, August.
  11. Kennan, John & Wilson, Robert, 1989. "Strategic Bargaining Models and Interpretation of Strike Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 4(S), pages S87-130, Supplemen.
  12. Kennan, John, 1985. "The duration of contract strikes in U.S. manufacturing," Journal of Econometrics, Elsevier, vol. 28(1), pages 5-28, April.
  13. Farber, Henry S, 1978. "Bargaining Theory, Wage Outcomes, and the Occurrence of Strikes: An Econometric Analysis," American Economic Review, American Economic Association, vol. 68(3), pages 262-71, June.
  14. Akerlof, George A & Yellen, Janet L, 1985. "Unemployment through the Filter of Memory," The Quarterly Journal of Economics, MIT Press, vol. 100(3), pages 747-73, August.
  15. McConnell, Sheena, 1989. "Strikes, Wages, and Private Information," American Economic Review, American Economic Association, vol. 79(4), pages 801-15, September.
  16. repec:cup:cbooks:9780521368513 is not listed on IDEAS
  17. Hoffman Elizabeth & McCabe Kevin & Shachat Keith & Smith Vernon, 1994. "Preferences, Property Rights, and Anonymity in Bargaining Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 346-380, November.
  18. Tracy, Joseph S, 1986. "An Investigation into the Determinants of U.S. Strike Activity," American Economic Review, American Economic Association, vol. 76(3), pages 423-36, June.
  19. Hoffman, Elizabeth & McCabe, Kevin A & Smith, Vernon L, 1996. "On Expectations and the Monetary Stakes in Ultimatum Games," International Journal of Game Theory, Springer, vol. 25(3), pages 289-301.
  20. Loewenstein, George, et al, 1993. "Self-Serving Assessments of Fairness and Pretrial Bargaining," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 135-59, January.
  21. Babcock, Linda & Wang, Xianghong & Lowenstein, George, 1996. "Choosing the Wrong Pond: Social Comparisons in Negotiations That Reflect a Self-Serving Bias," The Quarterly Journal of Economics, MIT Press, vol. 111(1), pages 1-19, February.
  22. Terrance Odean., 1996. "Volume, Volatility, Price and Profit When All Trader Are Above Average," Research Program in Finance Working Papers RPF-266, University of California at Berkeley.
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