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Bargaining with incomplete information: Evolutionary stability in finite populations

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  • Konrad, Kai A.
  • Morath, Florian

Abstract

This paper considers evolutionarily stable strategies (ESS) in a take-it-or-leave-it offer bargaining game with incomplete information. We find responders reject offers which yield a higher positive material payoff than their outside option. Proposers, in turn, may make more attractive offers than in the perfect Bayesian equilibrium. Efficiency-enhancing trade can break down even when the responder has no private information. Overall, the probability of trade and ex post efficiency are lower in the ESS than in the corresponding perfect Bayesian equilibrium. The results are observationally equivalent to behavioral explanations such as in-group favoritism and a preference for punishing selfish proposers but are driven by concerns about evolutionary fitness in finite populations.

Suggested Citation

  • Konrad, Kai A. & Morath, Florian, 2016. "Bargaining with incomplete information: Evolutionary stability in finite populations," Journal of Mathematical Economics, Elsevier, vol. 65(C), pages 118-131.
    • Handle: RePEc:eee:mateco:v:65:y:2016:i:c:p:118-131
    DOI: 10.1016/j.jmateco.2016.06.001
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    More about this item

    Keywords

    Evolutionary stability; Finite population; Take-it-or-leave-it offer bargaining; Asymmetric information;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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