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Bounded rationality in laboratory bargaining with asymmetric information

Author

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  • Timothy Cason
  • Stanley Reynolds

Abstract

This paper reports an experiment on two-player sequential bargaining with asymmetric information that features some forces present in multi-round monopoly pricing environments. Buyer-seller pairs play a series of bargaining games that last for either one or two rounds of offers. The treatment variable is the probability of continuing into a second round. Equilibrium predictions do a poor job of explaining levels of prices and treatment effects. As an alternative to the conventional equilibrium model, we consider models that allow for bounded rationality of subjects. The quantal response equilibrium model captures some of the important features of the results. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Timothy Cason & Stanley Reynolds, 2005. "Bounded rationality in laboratory bargaining with asymmetric information," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(3), pages 553-574, April.
    • Handle: RePEc:spr:joecth:v:25:y:2005:i:3:p:553-574
    DOI: 10.1007/s00199-003-0464-2
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    Citations

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    Cited by:

    1. Hugh Sibly & John Tisdell & Shane Evans, 2017. "How Do People Design a Mechanism? Experimental Evidence," The Economic Record, The Economic Society of Australia, vol. 93(302), pages 379-394, September.
    2. Jan Potters & Martin Sefton & Lise Vesterlund, 2007. "Leading-by-example and signaling in voluntary contribution games: an experimental study," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 33(1), pages 169-182, October.
    3. Tingliang Huang & Gad Allon & Achal Bassamboo, 2013. "Bounded Rationality in Service Systems," Manufacturing & Service Operations Management, INFORMS, vol. 15(2), pages 263-279, May.
    4. Philip A. Haile & Ali Hortaçsu & Grigory Kosenok, 2008. "On the Empirical Content of Quantal Response Equilibrium," American Economic Review, American Economic Association, vol. 98(1), pages 180-200, March.
    5. Dongkyu Chang & Duk Gyoo Kim & Wooyoung Lim, 2022. "Positive and Negative Selection in Bargaining: An Experiment," CESifo Working Paper Series 9908, CESifo.
    6. Bryan C. McCannon & John Stevens, 2017. "Role of personality style on bargaining outcomes," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 44(9), pages 1166-1196, September.
    7. Sean Crockett, 2008. "Learning competitive equilibrium in laboratory exchange economies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 34(1), pages 157-180, January.
    8. Olivier Bochet & Manshu Khanna & Simon Siegenthaler, 2021. "Beyond the Dividing Pie: Multi-Issue Bargaining in the Laboratory," Working Papers 20210070, New York University Abu Dhabi, Department of Social Science, revised Sep 2021.
    9. Qingbin Gong & Xundi Diao, 2022. "Bounded rationality, asymmetric information and mispricing in financial markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(1), pages 235-264, July.
    10. Rosato, Antonio, 2017. "Sequential negotiations with loss-averse buyers," European Economic Review, Elsevier, vol. 91(C), pages 290-304.
    11. Jack Fanning & Andrew Kloosterman, 2022. "An experimental test of the Coase conjecture: Fairness in dynamic bargaining," RAND Journal of Economics, RAND Corporation, vol. 53(1), pages 138-165, March.
    12. Fanning, Jack, 2022. "Fairness and the Coase conjecture," Journal of Economic Psychology, Elsevier, vol. 93(C).

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