What Slips the Mind Stalls the Deal: Delay in Bargaining with Absentmindedness

In finite-horizon bargaining, deals are often made "on the courthouse steps", just before the deadline. Most classic finite-horizon bargaining models fail to generate deadline effects, or even delay, in equilibrium. Players foresee the future path of play, and come to a deal immediately to circumvent bargaining frictions. We propose a novel source of bargaining delay: absentmindedness. A bargainer who does not know the calendar time may rationally reject an "ultimatum offer" as the trade deadline looms. Rational confusion is a source of bargaining power for the absentminded player, as it induces the other party to make fair offers near the trade deadline to prevent negotiations from breaking down. The absentminded party may reject greedier offers in hope of receiving a fair offer closer to the deadline. If any offer is feasible, there are equilibria which feature delay if and only if players are patient. Such equilibria always involve history-dependent strategies. I provide a necessary and sufficient condition for there to exist a Markov perfect equilibrium with delay: the space of feasible offers must be sufficiently disconnected.