Do people exploit their bargaining power? An experimental study

Abstract

Do people "play fair," or do they exploit their bargaining power? This paper suggests that such questions may not be well posed. It studies two bargaining situations that are very similar from the point of view of current fairness/focal theories of behavior, but differ in their strategic aspects. Different behavior in the two cases and a tendency by subjects after the experiment to describe as "fair" what actually occurred are reported. Journal of Economic Literature Classification Numbers: 026, 215. o 1991 Academic press, IIIC. * We are grateful to the Economics and Social Research Council of the United Kingdom for generously funding this research project. We also thank P. Knox and S. Chew for efficiently programming the experiments, and A. Hoolighan, A. Klin, C. Mirrlees. C. Purkhardt, and B. Thakker for their invaluable help in supervising the experiment and recruiting the subjects. We are also grateful to the Psychology Department at the London School of Economics for the use of their laboratory.

Envy can promote more equal division in alternating-offer bargaining.

“…Several studies were conducted changing Rubinstein's original framework. For instance, Binmore et al (1991Binmore et al ( , 1989 impose outside options or an optional or forced breakdown and document the sensitivity of subjects to the bargaining structure. A survey of infinite horizon bargaining theory including the aforementioned and further classic experiments is provided by Weg & Zwick (1999).…”

Economic Theory and Experimental Economics

“…For example, Binmore, Morgan, Shaked and Sutton [21] and Binmore, Shaked and Sutton [24] report experiments in which behavior responds to the difference between a voluntarily-exercised and involuntarily-exercised outside option in a direction consistent with theoretical predictions. However, Ochs and Roth [156] report an experiment in which behavior does not respond to the discount factor and the length of the game consistently with the predictions of subgame perfection.…”

Fairness, Price Stickiness, and History Dependence in Decentralized Trade

“…This makes it possible to consider a more flexible notion of fairness than is usually done. It is in line with cognitive dissonance theory from psychology and the noteworthy experiments of Binmore et al (1991) and Binmore et al (1993), where subjects who were triggered to play different bargaining equilibria ended up considering very different surplus distributions as 'fair '. 3 Apart from agents' concern with fairness, the investigated model is a simple version of the bargaining markets investigated by Rubinstein and Wolinsky (1985), Gale (1986a;1986b) or Binmore and Herrero (1988): buyers and sellers are randomly divided into pairs.…”