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

Nejat Anbarci, Nick Feltovich

Research output: Contribution to journalArticleResearchpeer-review

6 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)320-334
Number of pages15
JournalJournal of Economic Behavior and Organization
Volume145
DOIs
Publication statusPublished - 1 Jan 2018

Keywords

  • Dominant bargaining power
  • Experiment
  • Nash demand game
  • Real effort
  • Unstructured bargaining

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