Persuasion of Loss-Averse Receivers Through Early Offers

Heiko Karle, Heiner Schumacher and Rune Volund

No 19247, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a simple bargaining model in which the sender can make an early offer to the receiver. Initially, the sender has private information about the value of the receiver's outside option. The receiver learns this value before she chooses between the sender's early offer and her outside option. Nevertheless, if the receiver is expectation-based loss averse, the sender can persuade her to accept an offer that is inferior to her outside option. This result is due to the interaction of two effects: the attachment effect that makes it costly for the receiver to reject an offer that she planned to accept, and the uncertainty effect which renders the acceptance of the sender's offer as the preferred plan since it creates peace of mind at an early stage. If the receiver faces uncertainty in multiple dimensions, the main result holds for all degrees of loss aversion. Thus, expectation-based loss-averse preferences imply that there is scope for persuasion through signaling even if the receiver has all payoff-relevant information at the decision stage.

Date: 2024-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP19247 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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:cpr:ceprdp:19247

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP19247

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().