How fully do people exploit their bargaining position? The effects of bargaining institution and the 50–50 norm

Anbarci, N.; Feltovich, N.

Abstract

A recurring puzzle in bargaining experiments is that individuals under-exploit their bargaining position, compared to theoretical predictions. We conduct an experiment using two institutions: Nash demand game (NDG) and unstructured bargaining game (UBG). Unlike most previous experiments, disagreement payoffs are earned rather than assigned, and about one-fourth of the time, one bargainer's disagreement payoff is more than half the cake size (“dominant bargaining power”), so that equal splits are not individually rational. Subjects under-respond to their bargaining position most severely in the NDG without dominant bargaining power. Responsiveness increases in the UBG, but is still lower than predicted; the same is true for the NDG with dominant bargaining power. Only in the UBG with dominant bargaining power – the combination of a bargaining institution with low strategic uncertainty and elimination of the 50–50 “security blanket” – do subjects approximately fully exploit their bargaining position.

Citation

Anbarci, N., & Feltovich, N. (2018). How fully do people exploit their bargaining position? The effects of bargaining institution and the 50–50 norm. Journal of Economic Behavior and Organization, 145, 320-334. https://doi.org/10.1016/j.jebo.2017.11.020

• Journal Article Type: Article
• Acceptance Date: Nov 23, 2017
• Online Publication Date: Nov 29, 2017
• Publication Date: Jan 31, 2018
• Deposit Date: Aug 16, 2018
• Publicly Available Date: May 29, 2019
• Journal: Journal of Economic Behavior and Organization
• Print ISSN: 0167-2681
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 145
• Pages: 320-334
• DOI: https://doi.org/10.1016/j.jebo.2017.11.020
• Public URL: https://durham-repository.worktribe.com/output/1317228