Illustrated Examples of the Effects of Risk Preferences and Expectations on Bargaining Outcomes

David Dickinson

The Journal of Economic Education, 2003, vol. 34, issue 2, 169-180

Abstract: The author highlights bargaining examples that use expected utility theory. Bargainer payoffs in the event of a dispute are represented by a simple lottery. Expectations are assumed to affect a bargainer's subjective probabilities over lottery outcomes, and risk preferences affect the expected utility of a given lottery. Risk preferences and/or expectations are predicted to influence both negotiated outcomes and the likelihood of a bargaining impasse. The analysis shows that, ceteris paribus , risk aversion or pessimism, or both, will cause a bargainer to capture less of the pie in negotiations. Similarly, risk-loving and optimistic bargainers are more likely to experience impasse because of the disappearance of the contract zone. The results are intuitive, can be shown graphically and algebraically, and provide upper-level students with engaging examples that show the usefulness of expected utility theory.

Date: 2003
References: View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://hdl.handle.net/10.1080/00220480309595210 (text/html)
Access to full text is restricted to subscribers.

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:taf:jeduce:v:34:y:2003:i:2:p:169-180

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/VECE20

DOI: 10.1080/00220480309595210

Access Statistics for this article

The Journal of Economic Education is currently edited by William Walstad

More articles in The Journal of Economic Education from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().