Two-person sequential bargaining behavior with exogenous breakdown

Abstract

9 We examine bargaining behavior in a noncooperative game in which players alternate in making and responding to proposals over the division of a given surplus. Although the number of bargaining periods is unlimited and time is not discounted, the bargaining is subject to exogenous breakdown at each period with a fixed probability which is common knowledge. We manipulate three probabilities of breakdown in a between-subjects design that allows comparison with previous studies of two-person bargaining with time discounting. Assuming that subjects maximize expected utility, and this utility is measured by monetary payoffs, our results reject both the subgame perfect equilibrium and equal split solutions. Data analyses reveal that a substantial percentage of subjects behave adaptively in that they systematically search for the highest acceptable demands.

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

“…They find a limited role of intrapersonal comparisons in the bargaining and evidence in support of "inequality aversion as an empirically relevant fairness criterion", concluding that interpersonal criteria seem to be "deeply ingrained in human behavior". Weg et al (1990) and Zwick et al (1992) assess the predictive accuracy of the Rubinstein solution with respect to variations in the discount factor and uncertainty about the bargaining horizon, respectively. Weg et al limit the number of trials until agreement to 20 rounds, resulting in a termination of 7 out of 324 bargaining games in their experiment.…”

“…As players are aware of this condition, an alternative approach introduced by Zwick et al (1992) implements the common discount factor as a fixed probability of exogenous breakdown rather than as cost of delay. Mean demands in Zwick et al's experiment were closer to the equal split than to the Rubinstein division.…”

“…Ample evidence suggests that at least some people show regard for others, which includes aspects of envy (e.g., Camerer 2003;Cooper & Kagel n.d.;De Bruyn & Bolton 2008;Kohler 2012c;Smith 2008;Zwick et al 1992). Neural Correlates of envy were shown in functional magnetic resonance imaging studies that associated stronger envy with stronger anterior cingulate cortex activation Takahashi et al (2009).…”

Equity stakes and exit: An experimental approach to decomposing exit delay

“…Thus, since Murnighan and Roth () random termination has been the standard approach to manipulating the discount rate in laboratory experiment. Efforts to test their behavioral equivalence (Frechette and Yuksel, ; Zwick, Rapoport, and Howard, ) tend to find that games with discounting yield similar results to games with random termination.…”

Bargaining and Boldness

“…To see this, consider a three-bargainers situation in which V 3 1 x 3 . Thus, in period 1, bargainer 3 is indifferent between accepting x 3 1 or rejecting it 6 Additional support for the restriction to these kinds of strategies comes (at least in the two-person case) from the experimental work of Zwick, Rapoport, and Howard (1992). and otherwise nothing, would be willing to do so for a less favorable outcome if more uncertainty existed.…”