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A Behavioral Model of Bargaining with Endogenous Types

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    We enrich a simple two-person bargaining model by introducing "behavioral types" who concede more slowly than does the average person in the economy. The presence of behavioral types profoundly influences the choices of optimizing types. In equilibrium, concessions are calculated to induce "reciprocity": a substantial concession by player i is followed by a period in which j is much more likely to make a concession than usual. This favors concessions by i that are neither very small nor large enough to end the bargaining immediately. A key difference from the traditional method of perturbing a game is that the actions of our behavioral types are not specified in absolute terms, but relative to the norm in the population. Thus their behavior is determined endogenously as part of a social equilibrium.

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    File URL: http://cowles.yale.edu/sites/default/files/files/pub/d14/d1446.pdf
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    Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1446.

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    Length: 59 pages
    Date of creation: Nov 2003
    Date of revision:
    Handle: RePEc:cwl:cwldpp:1446
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    1. Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
    2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
    3. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
    4. Paul Klemperer & Jeremy Bulow, 1999. "The Generalized War of Attrition," Game Theory and Information 9901004, EconWPA.
    5. In-Koo Cho, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Oxford University Press, vol. 57(4), pages 575-595.
    6. Drew Fudenberg & David M. Kreps, 1987. "Reputation in the Simultaneous Play of Multiple Opponents," Review of Economic Studies, Oxford University Press, vol. 54(4), pages 541-568.
    7. Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
    8. Lones Smith & Ennio Stacchetti, 2002. "Aspirational Bargaining," Game Theory and Information 0201003, EconWPA.
    9. Eric Maskin & Jean Tirole, 1997. "Markov Perfect Equilibrium, I: Observable Actions," Harvard Institute of Economic Research Working Papers 1799, Harvard - Institute of Economic Research.
    10. Kalyan Chatterjee & Larry Samuelson, 1987. "Bargaining with Two-sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Oxford University Press, vol. 54(2), pages 175-192.
    11. Drew Fudenberg & David Kreps & David K. Levine, 1988. "On the Robustness of Equilibrium Refinements," Levine's Working Paper Archive 227, David K. Levine.
    12. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
    13. Ausubel, Lawrence M. & Cramton, Peter & Deneckere, Raymond J., 2002. "Bargaining with incomplete information," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 3, chapter 50, pages 1897-1945 Elsevier.
    14. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
    15. Hendricks, Ken & Weiss, Andrew & Wilson, Charles A, 1988. "The War of Attrition in Continuous Time with Complete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(4), pages 663-80, November.
    16. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
    17. Fudenberg, D., 1991. "Explaining Cooperatiob and Commitment in Repeated Games," Working papers 590, Massachusetts Institute of Technology (MIT), Department of Economics.
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