Exploding Offers Can Blow Up in More Than One Way

Nelson Lau (), Yakov Bart (), J. Neil Bearden () and Ilia Tsetlin ()
Additional contact information
Nelson Lau: KCG Asia Pacific, 079912 Singapore
Yakov Bart: INSEAD, 138676 Singapore
J. Neil Bearden: INSEAD, 138676 Singapore
Ilia Tsetlin: INSEAD, 138676 Singapore

Decision Analysis, 2014, vol. 11, issue 3, 171-188

Abstract: We investigate the use of exploding offers in job hiring situations via behavioral experiments. The proposer chooses between issuing an exploding or extended offer, whereas the responder waits for a better outside alternative. Whereas an exploding offer must be accepted or rejected before discovering whether a better alternative will arrive, an extended offer allows the responder first to learn the outcome of the better alternative. If the proposer's offer is accepted, the responder can reciprocate and alter the proposer's payoff. Across multiple studies, we find that a large portion of proposers issue exploding offers even though this results in substantially lower payoffs to themselves. These losses primarily arise from negative reciprocation by responders after accepting exploding offers. We show that decision makers exhibit behavioral consistency between their response to offers and the offers they make to others. Finally, we demonstrate that it is possible to decrease the propensity of making exploding offers through making potential negative reciprocity more salient by encouraging explicit introspection of the outcomes.

Keywords: exploding offers; deadlines; ultimatums; job search; firm employment decisions; behavioral economics (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:11:y:2014:i:3:p:171-188

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