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Efficiency versus equality in real-time bargaining with communication

Fabio Galeotti, Maria Montero () and Anders Poulsen ()

No 15-18, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.

Abstract: We collect experimental data from unstructured bargaining situations where bargainers are free to communicate via written messages. We vary the set of feasible contracts, thereby allowing us to assess the focality of three properties of bargaining outcomes: equality, Pareto efficiency, and total earnings maximization. Our main findings are that subjects avoid an equal earnings contract if it is Pareto inefficient; a large proportion of bargaining pairs avoid equal and Pareto efficient contracts in favor of unequal and total earnings maximizing contracts, and this proportion increases when unequal contracts offer larger earnings to one of the players, even though this implies higher inequality. Finally, observed behavior violates the Independence of Irrelevant Alternatives axiom, a result we attribute to a 'compromise effect'.

Keywords: bargaining; efficiency; equality; communication; experiment; independence of irrelevant alternatives (search for similar items in EconPapers)
JEL-codes: C70 C72 C92 (search for similar items in EconPapers)
Date: 2015-10-24
New Economics Papers: this item is included in nep-cta, nep-exp and nep-gth
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