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Bargaining and Search: An Experimental Study

  • Rami Zwick

    (The Hong Kong University of Science and Technology)

  • Ching Chyi Lee

    (The Chinese University of Hong Kong)

We study experimentally two versions of a model in which a buyer and a seller bargain over the price of a good; however, the buyer can choose to leave the negotiation table to search for other alternatives. Under one version, if the buyer chooses to search for a better price, the opportunity to purchase the good at the stated price is gone. Under the second version, the seller guarantees the same price if the buyer chooses to return immediately after a search (presumably because a better price could not be found). In both cases, the buyer has a fairly good idea about what to expect from the search, but because the search is costly, he has to weigh the potential benefits of the search against its cost. It turns out (theoretically) that adding search to a simple bargaining mechanism eliminates some unsatisfactory features of bargaining theory. Our experiment reveals that the model can account for some (but not all) of the behavioral regularities. In line with recent developments in behavioral decision theory and game theory, which assume bounded rationality and preferences over the relative division of a surplus, we find that subjects follow simple rules of thumb and distributional norms in choosing strategies, which are reflected in the behavioral consistencies observed in this study.

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File URL: http://econwpa.repec.org/eps/exp/papers/9902/9902003.pdf
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Paper provided by EconWPA in its series Experimental with number 9902003.

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Length: 37 pages
Date of creation: 23 Feb 1999
Date of revision:
Handle: RePEc:wpa:wuwpex:9902003
Note: Type of Document - Acrobat PDF; prepared on PC; pages: 37 ; figures: included. Group Decision and Negotiation (in press)
Contact details of provider: Web page: http://econwpa.repec.org

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