Optimism and Bargaining Inefficiency
In a modified version of Rubinstein's bargaining game, two players expect the random arrival of a third party, from whom one of them will receive an interim disagreement payoff in every period until an agreement is finally reached. Each player thinks that his own probability of receiving the disagreement payoff is greater than that assessed by the other player; that is, they are mutually optimistic. We show that when the level of optimism is high and not very durable, equilibrium agreement is delayed until the uncertainty is fully resolved. The efficiency loss caused by such a delay remains substantial when the players are extremely patient.
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Volume (Year): 9 (2009)
Issue (Month): 1 (April)
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References listed on IDEAS
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.:
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"Perfect Equilibrium in a Bargaining Model,"
Econometric Society, vol. 50(1), pages 97-109, January.
- Muhamet Yildiz, 2003. "Bargaining without a Common Prior-An Immediate Agreement Theorem," Econometrica, Econometric Society, vol. 71(3), pages 793-811, 05.
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- Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-1364, November.
- Raquel Fernandez & Jacob Glazer, 1989.
"Striking for a Bargain Between Two Completely Informed Agents,"
NBER Working Papers
3108, National Bureau of Economic Research, Inc.
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- Ali, S. Nageeb M., 2006. "Waiting to settle: Multilateral bargaining with subjective biases," Journal of Economic Theory, Elsevier, vol. 130(1), pages 109-137, September.
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"Perfect Equilibria in a Negotiation Model,"
University of Western Ontario, The Centre for the Study of International Economic Relations Working Papers
9108, University of Western Ontario, The Centre for the Study of International Economic Relations.
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