Consideration sets and reference points in a dynamic bargaining game

Emin Karagözoğlu and Kerim Keskin

Journal of Economic Behavior & Organization, 2024, vol. 219, issue C, 381-403

Abstract: We introduce the notion of limited consideration into a bilateral, infinite-horizon, alternating-offers bargaining game. Both agents have reference-dependent preferences, and their reference points are dynamically updated. An agent's current consideration set (or focus) is influenced by the last offer he rejected such that the most salient point in that consideration set becomes his current reference point. We provide an implicit characterization of stationary subgame perfect Nash equilibria in our model. Without resorting to asymmetric or incomplete information, we show that our bargaining game can produce delay and disagreement in equilibrium. In addition to analytical results on the disagreement conditions and the nature of agreements, we provide computational comparative statics on model parameters and study their impacts on delay.

Keywords: Bargaining; Consideration sets; Delay; Focusing; Reference dependence (search for similar items in EconPapers)
JEL-codes: C72 C78 D91 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:219:y:2024:i:c:p:381-403

DOI: 10.1016/j.jebo.2024.01.031

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