SPLITTING THE DIFFERENCE IN INCOMPLETE‐INFORMATION BARGAINING: THEORY AND WIDESPREAD EVIDENCE FROM THE FIELD

Daniel Keniston, Bradley J. Larsen, Shengwu Li, J.J. Prescott, Bernardo S. Silveira and Chuan Yu

International Economic Review, 2024, vol. 65, issue 4, 1911-1939

Abstract: This article documents a robust pattern from diverse sequential bargaining settings: agents favor offers that split the difference between the previous two offers. Our empirical settings include used cars, insurance claims, home sale, trade tariffs, a TV game show, eBay, and auto‐rickshaws. These even‐split offers are more likely to be accepted, less likely to spur exit by the opponent, and more likely to be followed by subsequent split‐the‐difference offers if bargaining continues. We propose several theoretical frameworks to explain this behavior, including an inference argument under which split‐the‐difference offers can be viewed as an equal split of the potential surplus.

Date: 2024
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