Bargaining Outcomes as the Result of Coordinated Expectations: An Experimental Study of Sequential Bargaining

Jeffrey Carpenter

Middlebury College Working Paper Series from Middlebury College, Department of Economics

Abstract: Experimental studies of two-person sequential bargaining demonstrate that the concept of subgame perfection is not a reliable point predictor of actual behavior. Alternative explanations argue that 1) fairness influences outcomes and 2) that bargainer expectations matter and are likely not to be coordinated at the outset. This paper examines the process by which bargainers in two-person dyads coordinate their expectations on a bargaining convention and how this convention is supported by the seemingly empty threat of rejecting positive but small subgame perfect offers. To organize the data from this experiment, we develop a Markov model of adaptive expectations and bounded rationality. The model predicts actual behavior quite closely.

Keywords: Sequential Bargaining; Experiment; Convention; Fairness; Finite Markov Chain; Bounded Rationality (search for similar items in EconPapers)
JEL-codes: C72 C78 C91 D84 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2002-04
New Economics Papers: this item is included in nep-cdm and nep-exp
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:mdl:mdlpap:0204

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