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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.

Suggested Citation

  • George Loewenstein & Don A. Moore, 2004. "When Ignorance Is Bliss: Information Exchange and Inefficiency in Bargaining," The Journal of Legal Studies, University of Chicago Press, vol. 33(1), pages 37-58, January.
  • Handle: RePEc:ucp:jlstud:v:33:y:2004:p:37-58 DOI: 10.1086/382581

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    References listed on IDEAS

    1. 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.
    2. 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.
    3. Crawford, Vincent P, 1982. "A Theory of Disagreement in Bargaining," Econometrica, Econometric Society, vol. 50(3), pages 607-637, May.
    4. 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 135-159, January.
    5. 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.
    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. 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 435-463, January.
    8. 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.
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    Cited by:

    1. Qiyan ONG & Yohanes Eko RIYANTO & Walter E. THESEIRA & Steven M. SHEFFRIN, 2013. "The Self-Image Signaling Roles of Voice in Decision-Making," Economic Growth Centre Working Paper Series 1303, Nanyang Technological University, School of Social Sciences, Economic Growth Centre.
    2. Emin Karagözoglu & Arno Riedl, 2010. "Information, Uncertainty, and Subjective Entitlements in Bargaining," CESifo Working Paper Series 3133, CESifo Group Munich.
    3. Christine Jolls, 2007. "Behavioral Law and Economics," NBER Working Papers 12879, National Bureau of Economic Research, Inc.
    4. De Cremer, David & Dijk, Eric van, 2009. "Paying for sanctions in social dilemmas: The effects of endowment asymmetry and accountability," Organizational Behavior and Human Decision Processes, Elsevier, vol. 109(1), pages 45-55, May.
    5. Christoph Engel & Heike Hennig-Schmidt & Bernd Irlenbusch & Sebastian Kube, 2009. "On Probation. An Experimental Analysis," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2009_38, Max Planck Institute for Research on Collective Goods.
    6. Christoph Engel & Michael Kurschilgen, 2011. "The Coevolution of Behavior and Normative Expectations. Customary Law in the Lab," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_32, Max Planck Institute for Research on Collective Goods.
    7. James Cooper & William Kovacic, 2012. "Behavioral economics: implications for regulatory behavior," Journal of Regulatory Economics, Springer, vol. 41(1), pages 41-58, February.

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