Positive and Negative Selection in Bargaining

Dongkyu Chang, Duk Gyoo Kim and Wooyoung Lim
Additional contact information
Dongkyu Chang: City University of Hong Kong
Duk Gyoo Kim: Yonsei University
Wooyoung Lim: The Hong Kong University of Science and Technology

No 2025rwp-272, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: In the standard dynamic screening problem between an uninformed seller and a privately informed buyer, theory suggests that the presence (absence) of the buyer's outside option leads to a substantial surplus for the seller (buyer). This outcome arises from contrasting unraveling processes that theory predicts: negative selection occurs in the absence of an outside option, while positive selection occurs in the presence of it. We examine the validity of these contrasting unraveling processes and report laboratory data that qualitatively deviate from theoretical predictions. We found that the seller's profit ranking was reversed between the two environments. In particular, in the presence of an outside option, the buyer frequently rejected current-round offers, leading to pervasive delays; and the seller's reported beliefs about the buyer's type were qualitatively more consistent with the negative selection than with the theoretically predicted positive selection.

Keywords: Positive Selection; Outside Options; Laboratory Experiments (search for similar items in EconPapers)
JEL-codes: C78 C91 D03 (search for similar items in EconPapers)
Pages: 66pages
Date: 2025-08
New Economics Papers: this item is included in nep-com, nep-des, nep-exp and nep-gth
References: Add references at CitEc
Citations:

Downloads: (external link)
http://121.254.254.220/repec/yon/wpaper/2025rwp-272.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:yon:wpaper:2025rwp-272

Access Statistics for this paper

More papers in Working papers from Yonsei University, Yonsei Economics Research Institute Contact information at EDIRC.
Bibliographic data for series maintained by YERI ().