The power of outside options in the presence of obstinate types

Tom-Reiel Heggedal, Leif Helland and Magnus Våge Knutsen

Games and Economic Behavior, 2022, vol. 136, issue C, 454-468

Abstract: We experimentally investigate the role of two-sided reputation-building in dynamic bargaining. In the absence of outside options, rational bargainers have an incentive to imitate obstinate types that are committed to an aggressive demand, inducing delay. Outside options remove this incentive and ensure immediate agreement whenever two rational bargainers match. Our data support the hypothesis that outside options cut down on imitation and ensure timely agreements, but only if subjects share a belief about what constitutes obstinacy. Further, we find that outside options are exercised excessively and that efficiency is no better than it is in their absence. We ascribe this result to the presence of fairness preferences in the subject pool.

Keywords: Bargaining; Reputation; Obstinate types; Experiment (search for similar items in EconPapers)
JEL-codes: C78 C91 D82 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:136:y:2022:i:c:p:454-468

DOI: 10.1016/j.geb.2022.10.011

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