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How sensitive are bargaining outcomes to changes in disagreement payoffs?

  • Nejat Anbarci
  • Nick Feltovich

We use a human–subjects experiment to investigate how bargaining outcomes are affected by changes in bargainers’disagreement payoffs. Subjects bargain against changing opponents, with an asymmetric disagreement outcome that varies over plays of the game. Both bargaining parties are informed of both disagreement payoffs (and the cake size) prior to bargaining. We find that bargaining outcomes do vary with the disagreement outcome, but subjects severely under–react to changes in their own disagreement payoff and to changes in the opponent’s disagreement payoff, relative to the risk–neutral prediction. This effect is observed in a standard Nash demand game and a related unstructured bargaining game, and for two different cake sizes varying by a factor of four. We show theoretically that standard models of expected utility maximisation are unable to account for this under–responsiveness – even when risk aversion is introduced. We also show that other–regarding preferences can explain our main results.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/3611howsensitiveanbarcifeltovich.pdf
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 36-11.

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Length: 37 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:mos:moswps:2011-36
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