Resistance to truthful revelation in bargaining: Persistent bid shading and the play of dominated strategies

James Parco and Ryan O. Murphy

Journal of Economic Psychology, 2013, vol. 39, issue C, 154-170

Abstract: We report results from a simultaneous bilateral bargaining experiment with attention to the effects of a settlement bonus on strategic decision-making behavior. In instances with a sufficiently large settlement bonus, truthful revelation emerges as the dominant strategy. However previous work (Parco & Rapoport, 2004) has experimentally tested this “Bonus Effect” and found that although the presence of a settlement bonus improves efficiency, behavior falls drastically short of the normative predictions. This finding illustrates the persistent tendency of decision makers to bid strategically, i.e. shading their bids, even when truthful revelation is a strictly dominant strategy. Herein we investigate the influence of the framing of information and look for ways to nudge decision makers toward making better choices in these strategic environments. Additional results from an adaptive reinforcement-based learning model are discussed as they relate to a potential innate bias for strategic misrepresentation even when contrary to self-interest and collective-interest.

Keywords: Bilateral bargaining; Information framing; Truthful revelation; Sealed bid mechanism; k-double auction; Linear equilibrium strategy (search for similar items in EconPapers)
JEL-codes: C72 C78 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:39:y:2013:i:c:p:154-170

DOI: 10.1016/j.joep.2013.07.008

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