Behavioral bargaining theory: Equality bias, risk attitude, and reference-dependent utility

Yoshio Kamijo and Koji Yokote ()
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Koji Yokote: JSPS Research Fellow, Graduate School of Economics, the University of Tokyo

No 2208, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: We develop a new theory, termed the behavioral bargaining theory (henceforth, BBT), that explains various observed behaviors in bargaining experiments in a unified manner. The key idea is to modify Nash’s (1950) model by endowing the players’ utility functions with a new concept, named entitlement, that represents the amount of money the player feels entitled to receive. We first apply BBT to explain the equality bias that is widely observed in the laboratory. We argue that our explanation of the bias in terms of entitlements is more easily interpretable than the extant explanation in terms of risk attitudes. Then, we demonstrate that BBT can also explain other behavioral patterns beyond the equality bias by suitably setting entitlements. Finally, we provide empirical support to BBT by using experimental data from Takeuchi et al. (2022), where entitlements of players can be inferred from the experimental design.

Keywords: Behavioral bargaining theory; Nash bargaining solution; Reference dependent utility; Equality bias; Equal-split norm (search for similar items in EconPapers)
Pages: 31 pages
Date: 2022-12
New Economics Papers: this item is included in nep-evo, nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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