The Effects of Beliefs versus Risk Preferences on Bargaining Outcomes

David Dickinson

No 05-17, Working Papers from Department of Economics, Appalachian State University

Abstract: In bargaining environments with uncertain impasse outcomes (e.g., litigation or labor strike outcomes), there is an identification problem that confounds data interpretation. In such environments, the minimally acceptable settlement value from a risk-averse (risk-loving) but unbiased bargainer is empirically indistinguishable from what one could get with risk-neutrality and pessimism (optimism). This paper reports data from a controlled bargaining experiment where risk preferences and beliefs are both measured in order to assess their relative importance in bargaining outcomes. The average lab subject is risk-averse, yet optimistic, which is consistent with existing studies that examine each in isolation. I also find that the effects of optimism dominate those of risk-aversion. Optimistic bargainers are significantly more likely to dispute and have aggressive final bargaining positions. Dispute rates are not statistically affected by risk preferences, but there is some evidence that risk aversion leads to less aggressive bargaining positions and lower payoff outcomes. A key implication is that increased settlement rates are more likely achieved by minimizing impasse uncertainty (to limit the potential for optimism) rather than maximizing uncertainty (to weaken the reservation point of risk-averse bargainers), as has been argued in the dispute resolution literature.

Keywords: risk preference; optimism; bargaining; experiments (search for similar items in EconPapers)
JEL-codes: C91 D81 D84 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-cbe and nep-exp
References: View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://econ.appstate.edu/RePEc/pdf/wp0517.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:apl:wpaper:05-17

Access Statistics for this paper

More papers in Working Papers from Department of Economics, Appalachian State University Contact information at EDIRC.
Bibliographic data for series maintained by O. Ashton Morgan ().