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When Ignorance Is Bliss: Information Exchange and Inefficiency in Bargaining

  • George Loewenstein
  • Don A. Moore

Most theories of legal discovery assume that the sharing of information among disputing parties will lead to convergence of expectations and facilitate settlement. However, psychological research shows that shared information, if open to multiple interpretations, is likely to be interpreted egocentrically by the disputants, which can cause beliefs to diverge rather than converge. We present results from a bargaining experiment that demonstrate that information sharing leads to divergence of expectations and to settlement delays when the information exchanged is amenable to multiple interpretations. By contrast, when there is only one obvious interpretation, information sharing leads to convergence of expectations and speeds settlement. We show, further, that information sharing moderates the relationship between the size of the bargaining zone and the prospects for settlement.

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File URL: http://dx.doi.org/10.1086/382581
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Article provided by University of Chicago Press in its journal The Journal of Legal Studies.

Volume (Year): 33 (2004)
Issue (Month): 1 (01)
Pages: 37-58

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Handle: RePEc:ucp:jlstud:v:33:y:2004:p:37-58
DOI: 10.1086/382581
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLS/

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  1. 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.
  2. Cooter, Robert D & Rubinfeld, Daniel L, 1994. "An Economic Model of Legal Discovery," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 435-63, January.
  3. 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.
  4. Steven Shavell, 1989. "Sharing of Information Prior to Settlement or Litigation," RAND Journal of Economics, The RAND Corporation, vol. 20(2), pages 183-195, Summer.
  5. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-37, May.
  6. Kalyan Chatterjee & Larry Samuelson, 1987. "Bargaining with Two-sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 175-192.
  7. Babcock, Linda & Loewenstein, George & Wang, Xianghong, 1995. "The relationship between uncertainty, the contract zone, and efficiency in a bargaining experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 475-485, August.
  8. Linda Babcock & George Loewenstein, 1997. "Explaining Bargaining Impasse: The Role of Self-Serving Biases," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 109-126, Winter.
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