On the empirical validity of axioms in unconstrained bargaining

Noemí Navarro and Róbert Veszteg

Cahiers du GREThA (2007-2019) from Groupe de Recherche en Economie Théorique et Appliquée (GREThA)

Abstract: We report experimental results and test cooperative models of unstructured bargaining by checking the empirical relevance of underlying axioms. Our data support strong efficiency, symmetry, independence of irrelevant alternatives and monotonicity, and reject scale invariance. Individual rationality is violated by a significant fraction of agreements when in conflict to implement the equal split. The three well-known bargaining solutions that satisfy the confirmed properties explain the observed agreements reasonably well. The most frequent agreement in our sample is the egalitarian solution. In terms of the average Euclidean distance, the theoretical solution that best explains the data is the deal-me-out solution (Binmore et al., 1989; Binmore et al., 1991), followed very closely by the equal-gains solution (Roth and Malouf, 1979). Popular solutions that satisfy scale invariance and individual rationality, as the well-known Nash or Kalai-Smorodinsky bargaining solutions, perform poorly in the laboratory.

Keywords: bilateral bargaining; experiments; Nash bargaining solution; egalitarian solution; deal-me-out solution; individual rationality; scale invariance (search for similar items in EconPapers)
JEL-codes: C78 C91 D63 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-exp, nep-gth and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:grt:wpegrt:2017-18

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