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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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    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
    Contact details of provider: Postal: Yale University, Box 208281, New Haven, CT 06520-8281 USA
    Phone: (203) 432-3702
    Fax: (203) 432-6167
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    Order Information: Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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    1. Levine, David & Kreps, David & Fudenberg, Drew, 1988. "On the Robustness of Equilibrium Refinements," Scholarly Articles 3350444, Harvard University Department of Economics.
    2. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 575-95, October.
    3. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
    4. Eric Maskin & Jean Tirole, 1997. "Markov Perfect Equilibrium, I: Observable Actions," Harvard Institute of Economic Research Working Papers 1799, Harvard - Institute of Economic Research.
    5. Fudenberg, D., 1991. "Explaining Cooperatiob and Commitment in Repeated Games," Working papers 590, Massachusetts Institute of Technology (MIT), Department of Economics.
    6. Chatterjee, Kalyan & Samuelson, Larry, 1987. "Bargaining with Two-Sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Wiley Blackwell, vol. 54(2), pages 175-92, April.
    7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
    8. 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.
    9. Hendricks, Kenneth & Weiss, Andrew & Wilson, Charles, 1987. "The War of Attrition in Continuous Time with Complete Information," Working Papers 87-03, C.V. Starr Center for Applied Economics, New York University.
    10. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
    11. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    12. Paul Milgrom & John Roberts, 1997. "Predation, reputation , and entry deterrence," Levine's Working Paper Archive 1460, David K. Levine.
    13. Lones Smith & Ennio Stacchetti, 2002. "Aspirational Bargaining," Game Theory and Information 0201003, EconWPA.
    14. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    15. Fudenberg, Drew & Kreps, David M, 1987. "Reputation in the Simultaneous Play of Multiple Opponents," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 541-68, October.
    16. Paul Klemperer & Jeremy Bulow, 1999. "The Generalized War of Attrition," American Economic Review, American Economic Association, vol. 89(1), pages 175-189, March.
    17. 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.
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