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Bargaining Outcomes as the Result of Coordinated Expectations: An Experimental Study of Sequential Bargaining

Listed author(s):
  • Jeffrey Carpenter


Experimental studies of two-person sequential bargaining demonstrate that the concept of subgame perfection is not a reliable point predictor of actual behavior. Alternative explanations argue that 1) fairness influences outcomes and 2) that bargainer expectations matter and are likely not to be coordinated at the outset. This paper examines the process by which bargainers in two-person dyads coordinate their expectations on a bargaining convention and how this convention is supported by the seemingly empty threat of rejecting positive but small subgame perfect offers. To organize the data from this experiment, we develop a Markov model of adaptive expectations and bounded rationality. The model predicts actual behavior quite closely.

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Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0204.

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Length: 31 pages
Date of creation: Apr 2002
Handle: RePEc:mdl:mdlpap:0204
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