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Bargaining with History Dependent Preferences

  • Duozhe Li
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    We study perfect information bilateral bargaining game with an infinite alternating-offers procedure, in which we add an assumption of history dependent preference. A player will devalue a share which gives her strictly lower discounted utility than what she was offered in earlier stages of the bargaining, namely, a ``worse off'' outcome. In a strong version of the assumption, each player prefers impasse to any ``worse off'' outcome. We characterize the essentially unique subgame perfect equilibrium path under the assumption. The equilibrium entails considerable delay and efficiency loss. As the players become infinitely patient, the efficiency loss goes to one half, and the equilibrium share goes to Nash solution. The assumption can also be weakened. We provide a sufficient condition on the extent of devaluation under which the feature of the equilibrium from strong assumption remains

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    Paper provided by Econometric Society in its series Econometric Society 2004 North American Summer Meetings with number 516.

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    Date of creation: 11 Aug 2004
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    Handle: RePEc:ecm:nasm04:516
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    1. Sakovics Jozsef, 1993. "Delay in Bargaining Games with Complete Information," Journal of Economic Theory, Elsevier, vol. 59(1), pages 78-95, February.
    2. Dekel, Eddie, 1989. "Simultaneous Offers and the Inefficiency of Bargaining: A Two-Period Example," Department of Economics, Working Paper Series qt2b0402g4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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    5. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
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    7. Abhinay Muthoo, . "A Bargaining Model Based on the Commitment Tactic," Economics Discussion Papers 420, University of Essex, Department of Economics.
    8. D. B. Bernheim, 2010. "Rationalizable Strategic Behavior," Levine's Working Paper Archive 514, David K. Levine.
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    11. van Damme,Eric, 1987. "Stable equilibria and forward induction," Discussion Paper Serie A 128, University of Bonn, Germany.
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    14. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July.
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    19. Olivier Compte & Philippe Jehiel, 2004. "Gradualism in Bargaining and Contribution Games," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 975-1000, October.
    20. Perry Motty & Reny Philip J., 1993. "A Non-cooperative Bargaining Model with Strategically Timed Offers," Journal of Economic Theory, Elsevier, vol. 59(1), pages 50-77, February.
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    22. P. Reny, 2010. "Common Belief and the Theory of Games with Perfect Information," Levine's Working Paper Archive 386, David K. Levine.
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