What Price Compromise? Testing a Possibly Surprising Impliction of Nash Bargaining Theory
This paper provides a very simple experimental test of a prediction of Nash Bargaining Theory that seems counterintuitive. The context is a simple bargaining problem between two players who have to agree a choice from three alternatives. One alternative favors one player and a second favors the other. The third is a fair compromise, but is excluded as an agreed choice by Nash Bargaining Theory. Our experimental results show that agreement on this third outcome occurs rather often. So the Nash theory is not well-supported by our evidence, although neither is a Strategic explanation of the data. The Nash-precluded outcome appeals because of its compromise nature; indeed, players are prepared to pay a price which is (according to the Nash theory) irrationally high, in order to reach a fair compromise.
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|Contact details of provider:|| Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom|
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- Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
- Roth, Alvin E & Murnighan, J Keith, 1982.
"The Role of Information in Bargaining: An Experimental Study,"
Econometric Society, vol. 50(5), pages 1123-42, September.
- Alvin E Roth & J K Murnighan, 1997. "The rule of information in bargaining: an experimental study," Levine's Working Paper Archive 1631, David K. Levine.
- Cox, J. & Friedman, D. & Gjerstad, S., 2006.
"A Trackable Model of Reciprocity and Fairness,"
Purdue University Economics Working Papers
1181, Purdue University, Department of Economics.
- James C. Cox & Daniel Friedman & Steven Gjerstad, 2006. "A Tractable Model of Reciprocity and Fairness," Experimental Economics Center Working Paper Series 2006-05, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
- James Cox & Daniel Friedman & Steven Gjerstad, 2004. "A Tractable Model of Reciprocity and Fairness," Experimental 0406001, EconWPA.
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