Failure of Bayesian Updating in Repeated Bilateral Bargaining

Ching Chyi Lee, Eythan Weg and Rami Zwick
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Ching Chyi Lee: The Chinese University of Hong Kong
Eythan Weg: Purdue University
Rami Zwick: The Hong Kong University of Science and Technology

Chapter Chapter 13 in Experimental Business Research, 2005, pp 249-260 from Springer

Abstract: Abstract Ever since Camerer and Weigelt (1988) concluded in their important experimental work that “sequential equilibrium describes actual behavior well enough,” we might be tempted to use this theory confidently in various domains. To assess the robustness of the above conclusion, the present study attempts to explore Bayesian updating in a bilateral negotiated sale setup injected with a whiff of an ultimatum aroma. We conclude that the ultimatum nature of the basic game tends to overwhelm rational behavior on the part of the sellers and that buyers are not cognizant of favorable prices occurring later in the game.

Keywords: Search Cost; Sequential Equilibrium; Price Demand; Repeat Bilateral; Rice Demand (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1007/0-387-24243-0_13

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