Dynamic fairness in repeated bargaining with risk

Kyle Hyndman

Journal of Economic Psychology, 2023, vol. 94, issue C

Abstract: We study dynamic notions of fairness via an experiment of a two-round bilateral bargaining environment, where the payoff to one player is subject to ex-post risk, while the other player receives a fixed payment, effectively making the player exposed to risk a residual claimant. The ex-post risk not only provides substantive issues for bargaining parties to resolve in the experiment – i.e. what is a fair compensation for the exposure to risk – it also results in the endogenous formation of reference points for the second round due to ex post inequality after the realization of uncertainty in the first round. We find support for a “payback” hypothesis. That is, agreements in the second round significantly differ from the first round in a manner consistent with reducing the inequality that arose due to the initial pie realization.

Keywords: Repeated bargaining; Ex-post risk; Dynamic fairness (search for similar items in EconPapers)
JEL-codes: C71 C92 D81 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:94:y:2023:i:c:s0167487022000885

DOI: 10.1016/j.joep.2022.102576

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