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Escalation Bargaining: Theoretical Analysis and Experimental Test

Author

Listed:
  • Swee-Hoon Chuah

    (Nottingham University Business School, University of Nottingham)

  • Robert Hoffmann

    (Nottingham University Business School, University of Nottingham)

  • Jeremy Larner

    (Nottingham University Business School, University of Nottingham)

Abstract

The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behaviour these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyse, theoretically and by experiment, a new game which permits escalation behaviour. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored.

Suggested Citation

  • Swee-Hoon Chuah & Robert Hoffmann & Jeremy Larner, 2011. "Escalation Bargaining: Theoretical Analysis and Experimental Test," Discussion Papers 2011-05, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    • Handle: RePEc:not:notcdx:2011-05
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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