The Focusing Effect in Negotiations

Andrea Canidio and Heiko Karle

No 9297, CESifo Working Paper Series from CESifo

Abstract: Two players with preferences distorted by the focusing effect (Koszegi and Szeidl, 2013) negotiate an agreement over several issues and one transfer. We show that, as long as their preferences are differentially distorted, an issue will be inefficiently left out of the agreement or inefficiently included in the agreement whenever the importance of the other issues on the table is sufficiently large. Anticipating this possibility, the negotiating parties may negotiate in stages, by first signing an incomplete agreement and later finalizing the outcome of the negotiation. Negotiating in stages increases the efficiency of the negotiation, despite the fact that the players’ preferences are distorted by the focusing effect also when negotiating the incomplete agreement.

Keywords: salience; focusing effect; bargaining; negotiations; incomplete agreements (search for similar items in EconPapers)
JEL-codes: C78 D03 D86 F51 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-gth and nep-isf
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Related works:
Journal Article: The focusing effect in negotiations (2022)
Working Paper: The Focusing Effect in Negotiations (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9297

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