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Escalation Bargaining: Theoretical Analysis and Experimental Test

The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behaviour these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyse, theoretically and by experiment, a new game which permits escalation behaviour. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored.

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Paper provided by International Centre for Behavioural Business Research in its series ICBBR Working Papers with number 16.

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Date of creation: 13 May 2011
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Handle: RePEc:bbr:workpa:16
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  1. AUMANN, Robert J. & DREZE, Jacques H., . "Assessing strategic risk," CORE Discussion Papers RP 2089, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  9. Shaun Hargreaves-Heap & Yanis Varoufakis, 2002. "Some Experimental Evidence On The Evolution Of Discrimination, Co--Operation And Perceptions Of Fairness," Economic Journal, Royal Economic Society, vol. 112(481), pages 679-703, July.
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  12. Brams, Steven J. & Kilgour, D. Marc, 1985. "Winding Down if Preemption or Escalation Occurs: A Game-Theoretic Analysis," Working Papers 85-30, C.V. Starr Center for Applied Economics, New York University.
  13. Engelmann, Dirk & Steiner, Jakub, 2007. "The effects of risk preferences in mixed-strategy equilibria of 2x2 games," Games and Economic Behavior, Elsevier, vol. 60(2), pages 381-388, August.
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  15. Carpenter, Jeffrey & Rudisill, McAndrew, 2003. "Fairness, escalation, deference, and spite: strategies used in labor-management bargaining experiments with outside options," Labour Economics, Elsevier, vol. 10(4), pages 427-442, August.
  16. Iñaki Rodriguez-Prieto & Esteban Fernández-Juricic & José Martín & Yohana Regis, 2009. "Antipredator behavior in blackbirds: habituation complements risk allocation," Behavioral Ecology, International Society for Behavioral Ecology, vol. 20(2), pages 371-377.
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