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Generosity in bargaining: Fair or fear?

  • Breitmoser, Yves
  • Tan, Jonathan H.W.

Are "generous" bargaining offers made out of fairness or in fear of rejection? We disentangle risk and social references by analyzing experimental behavior in three majority bargaining games: (1) a random-proposer game with infinite time horizon; 2) a one round proposer game with disagreement payoffs equal to the infinite horizon continuation payoffs; and, (3) a demand commitment game. Inequity aversion predicts very differently across these games, but risk aversion does not. Observed strategies violate neither stationarity nor truncation consistency. This allows us to use structural models of bargaining behavior to estimate the latent type shares of subjects with CES, inequity averse, and Prospect theoretic preferences. The Prospect theoretic, i.e. reference-dependent, model of utility explains the observations far better than any mixture of alternative models.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 27444.

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Date of creation: 14 Dec 2010
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Handle: RePEc:pra:mprapa:27444
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