The Focusing Effect in Negotiations

Heiko Karle and Andrea Canidio

No 15698, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Two players with preferences distorted by the focusing effect (Koszegi and Szeidl, 2013) negotiate an agreement over several issues and one transfer. Our main result is 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. When this is the case, the salience of the transfer dimension is large for both players, but differentially so, therefore creating a form of disagreement between them. In extreme cases, this could lead to an inefficient breakdown of the negotiation. Anticipating this possibility, the negotiating parties may negotiate in stages, by first signing an incomplete agreement and later finalizing the outcome of the negotiation. As in Raiffa (1982), these incomplete agreements may impose bounds on some dimensions of the bargaining solution in order to reduce their salience.

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: 2021-01
New Economics Papers: this item is included in nep-gth
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Citations: View citations in EconPapers (2)

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