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Expectations and Comparative Arbitration Institutions

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  • David Dickinson

Abstract

Arbitration is a growing method of resolving disputes in varied settings. While two specific arbitration rules dominate in practice, other procedures have been hypothesized to better promote voluntary settlement. Such hypotheses require theoretical assumptions of identical bargainer expectations even though divergent expectations or optimism is considered prevalent in naturally occurring negotiations. This article examines disputant behavior in a controlled laboratory setting where point-estimates of disputant expectations are captured, thus allowing one to test the “chilling effect” hypotheses of optimism on both dispute rates and final- offer divergence. The extent of the dual chilling effect is examined for both commonly used arbitration procedures as well as for an innovative procedure that, while not used in practice, is theoretically predicted to induce final-offer convergence when expectations are unbiased. The results show that optimism is prevalent in the data, extra information does not fully de-bias the disputants, and optimism increases both dispute rates and final- offer divergence. The degree to which a final offer plays a strategic role in the arbitration institution is an important determinant of this final chilling effect result. Lastly, once the effects of optimism are considered, the innovative arbitration procedure actually generates the highest dispute rates, contrary to its theoretical claim.
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  • David Dickinson, 2004. "Expectations and Comparative Arbitration Institutions," Working Papers 04-22, Department of Economics, Appalachian State University.
  • Handle: RePEc:apl:wpaper:04-22
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    Cited by:

    1. David Dickinson, 2005. "Bargaining Outcomes with Double-Offer Arbitration," Experimental Economics, Springer;Economic Science Association, vol. 8(2), pages 145-166, June.
    2. David Dickinson & Lynn Hunnicutt, 2010. "Nonbinding recommendations: the relative effects of focal points versus uncertainty reduction on bargaining outcomes," Theory and Decision, Springer, vol. 69(4), pages 615-634, October.

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