The chilling effect of optimism: The case of final-offer arbitration
This article examines the incentive effects of final-offer arbitration (FOA) in the presence of optimistic disputants. Common disputant expectations about the likely arbitrator settlement preferences are not a necessary condition for equilibrium final offers. It is shown that equilibrium final offers can exist under at least two forms of disputant optimism, naïve optimism and more sophisticated beliefs. Additionally, equilibrium final offers diverge more when disputants are optimistic than when they are not, and even more when optimism is naïve as opposed to sophisticated. The implication is that FOA rules, though instituted to lessen the chilling effect of arbitration on negotiations, interact with optimistic beliefs in a way that worsens the chilling effect. Data from controlled laboratory experiments confirm that optimistic expectations increase the distance between the disputants final bargaining positions as well as the probability of dispute. These results highlight the importance of improving disputant expectations as an effective way of improving bargaining outcomes.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 35 (2006)
Issue (Month): 1 (February)
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/620175|
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.:
- Ashenfelter, Orley, 1987.
American Economic Review,
American Economic Association, vol. 77(2), pages 342-46, May.
- Farber, Henry S & Bazerman, Max H, 1989. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes," The Quarterly Journal of Economics, MIT Press, vol. 104(1), pages 99-120, February.
- Orley Ashenfelter & Janet Currie & Henry S. Farber & Matthew Spiegel, 1990.
"An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems,"
NBER Working Papers
3417, National Bureau of Economic Research, Inc.
- Ashenfelter, Orley, et al, 1992. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Econometrica, Econometric Society, vol. 60(6), pages 1407-33, November.
- Ashenfelter, O. & Currie, J. & Farber, H.S., 1990. "An Experimental Comparison Of Dispute Rates In Alternative Arbritation Systems," Working papers 562, Massachusetts Institute of Technology (MIT), Department of Economics.
- Orley Ashenfelter & Janet Currie & Henry S. Farber & Matthew Spiegel, 1990. "An Experimental Comparison of Dispute Rates in Alternative Arbitration Systems," Working Papers 647, Princeton University, Department of Economics, Industrial Relations Section..
- Ashenfelter, O. & Currie, J. & Farber, H.S. & Spiegel, M., 1990. "An Experimental Comparison Of Dispute Rates In Alternative Arbitration Systems," Papers 55, Princeton, Woodrow Wilson School - Discussion Paper.
- Pecorino, Paul & Van Boening, Mark, 2001. "Bargaining and Information: An Empirical Analysis of A Multistage Arbitration Game," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 922-48, October.
- Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-26, December.
- 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.
- 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.
- Steven J. Brams & Samuel Merrill, III, 1983. "Equilibrium Strategies for Final-Offer Arbitration: There is no Median Convergence," Management Science, INFORMS, vol. 29(8), pages 927-941, August.
- Henry S. Farber & Max H. Bazerman, 1987. "Divergent Expectations as a Cause of Disagreement in Bargaining: Evidence from a Comparison of Arbitration Schemes."," NBER Working Papers 2139, National Bureau of Economic Research, Inc.
- Steven J. Brams & Samuel Merrill, III, 1986.
"Binding Versus Final-Offer Arbitration: A Combination is Best,"
INFORMS, vol. 32(10), pages 1346-1355, October.
- Brams, Steven J. & Merrill, Samuel III, 1984. "Binding Versus Final-Offer Arbitration: A Combination is Best," Working Papers 84-07, C.V. Starr Center for Applied Economics, New York University.
- Crawford, Vincent P, 1979. "On Compulsory-Arbitration Schemes," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 131-59, February.
- Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
- Babcock, Linda, et al, 1995. "Biased Judgments of Fairness in Bargaining," American Economic Review, American Economic Association, vol. 85(5), pages 1337-43, December.
- Farmer, Amy & Pecorino, Paul & Stango, Victor, 2004. "The Causes of Bargaining Failure: Evidence from Major League Baseball," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 543-68, October.
- Bolton, Gary E. & Katok, Elena, 1998. "Reinterpreting Arbitration's Narcotic Effect: An Experimental Study of Learning in Repeated Bargaining," Games and Economic Behavior, Elsevier, vol. 25(1), pages 1-33, October.
When requesting a correction, please mention this item's handle: RePEc:eee:soceco:v:35:y:2006:i:1:p:17-30. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.