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The Focusing Effect in Negotiations

Author

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  • Andrea Canidio
  • Heiko Karle

Abstract

Two players with preferences distorted by the focusing effect (Koszegi and Szeidl, 2013) negotiate an agreement over several issues and one transfer. We show that, as long as their preferences are differentially distorted, an issue will be inefficiently left out of the agreement or inefficiently included in the agreement whenever the importance of the other issues on the table is sufficiently large. Anticipating this possibility, the negotiating parties may negotiate in stages, by first signing an incomplete agreement and later finalizing the outcome of the negotiation. Negotiating in stages increases the efficiency of the negotiation, despite the fact that the players’ preferences are distorted by the focusing effect also when negotiating the incomplete agreement.

Suggested Citation

  • Andrea Canidio & Heiko Karle, 2021. "The Focusing Effect in Negotiations," CESifo Working Paper Series 9297, CESifo.
  • Handle: RePEc:ces:ceswps:_9297
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    References listed on IDEAS

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    2. Markus Dertwinkel-Kalt & Holger Gerhardt & Gerhard Riener & Frederik Schwerter & Louis Strang, 2022. "Concentration Bias in Intertemporal Choice [Eliciting Risk and Time Preferences]," Review of Economic Studies, Oxford University Press, vol. 89(3), pages 1314-1334.

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    More about this item

    Keywords

    salience; focusing effect; bargaining; negotiations; incomplete agreements;
    All these keywords.

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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