The Effects of Beliefs versus Risk Preferences on Bargaining Outcomes
In bargaining environments with uncertain impasse outcomes (e.g., litigation or labor strike outcomes), there is an identification problem that confounds data interpretation. In such environments, the minimally acceptable settlement value from a risk-averse (risk-loving) but unbiased bargainer is empirically indistinguishable from what one could get with risk-neutrality and pessimism (optimism). This paper reports data from a controlled bargaining experiment where risk preferences and beliefs are both measured in order to assess their relative importance in bargaining outcomes. The average lab subject is risk-averse, yet optimistic, which is consistent with existing studies that examine each in isolation. I also find that the effects of optimism dominate those of risk-aversion. Optimistic bargainers are significantly more likely to dispute and have aggressive final bargaining positions. Dispute rates are not statistically affected by risk preferences, but there is some evidence that risk aversion leads to less aggressive bargaining positions and lower payoff outcomes. A key implication is that increased settlement rates are more likely achieved by minimizing impasse uncertainty (to limit the potential for optimism) rather than maximizing uncertainty (to weaken the reservation point of risk-averse bargainers), as has been argued in the dispute resolution literature.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Thelma C. Raley Hall, Boone, North Carolina 28608|
Web page: http://economics.appstate.edu/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:apl:wpaper:05-17. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (O. Ashton Morgan)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.