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Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining

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  • Stefan Kohler

    () (Institute for Social Medicine, Epidemiology and Health Economics, Charité University Medical Center, Luisenstrae 57, 10117 Berlin, Germany)

Abstract

Two deviations of alternating-offer bargaining behavior from economic theory are observed together, yet have been studied separately. Players who could secure themselves a large surplus share if bargainers were purely self-interested incompletely exploit their advantage. Delay in agreement occurs even if all experimentally controlled information is common knowledge. This paper rationalizes both regularities coherently by modeling heterogeneous social preferences, either self-interest or envy, of one bargaining party as private information in a three period game of bargaining and preference screening and signaling.

Suggested Citation

  • Stefan Kohler, 2012. "Incomplete Information about Social Preferences Explains Equal Division and Delay in Bargaining," Games, MDPI, Open Access Journal, vol. 3(3), pages 1-19, September.
  • Handle: RePEc:gam:jgames:v:3:y:2012:i:3:p:119-137:d:20059
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    References listed on IDEAS

    as
    1. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    2. Stefan Kohler, 2014. "Guilt causes equal or unequal division in alternating-offer bargaining," Economics Bulletin, AccessEcon, vol. 34(3), pages 1611-1617.
    3. Jonathan Tan & Friedel Bolle, 2006. "On the Relative Strengths of Altruism and Fairness," Theory and Decision, Springer, pages 35-67.
    4. Ausubel, Lawrence M. & Deneckere, Raymond J., 1989. "A direct mechanism characterization of sequential bargaining with one-sided incomplete information," Journal of Economic Theory, Elsevier, vol. 48(1), pages 18-46, June.
    5. Maria Montero, 2007. "Inequity Aversion May Increase Inequity," Economic Journal, Royal Economic Society, vol. 117(519), pages 192-204, March.
    6. Kohler, Stefan, 2011. "Altruism and fairness in experimental decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 101-109.
    7. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, pages 1096-1136.
    8. Ochs, Jack & Roth, Alvin E, 1989. "An Experimental Study of Sequential Bargaining," American Economic Review, American Economic Association, pages 355-384.
    9. Driesen, Bram & Perea, Andrés & Peters, Hans, 2012. "Alternating offers bargaining with loss aversion," Mathematical Social Sciences, Elsevier, vol. 64(2), pages 103-118.
    10. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, pages 166-193.
    11. Rasch, Alexander & Wambach, Achim & Wiener, Kristina, 2012. "Bargaining and inequity aversion: On the efficiency of the double auction," Economics Letters, Elsevier, vol. 114(2), pages 178-181.
    12. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, pages 1096-1136.
    13. Peter C. Cramton, 1992. "Strategic Delay in Bargaining with Two-Sided Uncertainty," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 205-225.
    14. von Siemens, Ferdinand A., 2009. "Bargaining under incomplete information, fairness, and the hold-up problem," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 486-494, August.
    15. Jacob K. Goeree & Charles A. Holt, "undated". "Asymmetric Inequality Aversion and Noisy Behavior in Alternating-Offer Bargaining Games," Virginia Economics Online Papers 329, University of Virginia, Department of Economics.
    16. Srivastava, Joydeep, 2001. "The Role of Inferences in Sequential Bargaining with One-Sided Incomplete Information: Some Experimental Evidence," Organizational Behavior and Human Decision Processes, Elsevier, vol. 85(1), pages 166-187, May.
    17. Grossman, Sanford J. & Perry, Motty, 1986. "Sequential bargaining under asymmetric information," Journal of Economic Theory, Elsevier, vol. 39(1), pages 120-154, June.
    18. Goeree, Jacob K. & Holt, Charles A., 2000. "Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games," European Economic Review, Elsevier, vol. 44(4-6), pages 1079-1089, May.
    19. Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.
    20. Joel Sobel & Ichiro Takahashi, 1983. "A Multistage Model of Bargaining," Review of Economic Studies, Oxford University Press, vol. 50(3), pages 411-426.
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    Citations

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    Cited by:

    1. Kohler, Stefan, 2013. "Inequality aversion causes equal or unequal division in alternating-offer bargaining," MPRA Paper 40764, University Library of Munich, Germany.
    2. Ozan Aksoy & Jeroen Weesie, 2013. "Hierarchical Bayesian Analysis of Biased Beliefs and Distributional Other-Regarding Preferences," Games, MDPI, Open Access Journal, vol. 4(1), pages 1-23, February.
    3. Kohler, Stefan, 2012. "Envy can promote more equal division in alternating-offer bargaining," MPRA Paper 40761, University Library of Munich, Germany.

    More about this item

    Keywords

    alternating-offer bargaining; asymmetric information; envy; fairness; inequality aversion; uncertainty;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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