Bargaining and Search: An Experimental Study

Rami Zwick (ramiz@ucr.edu) and Ching Chyi Lee
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Ching Chyi Lee: The Chinese University of Hong Kong

Experimental from University Library of Munich, Germany

Abstract: We study experimentally two versions of a model in which a buyer and a seller bargain over the price of a good; however, the buyer can choose to leave the negotiation table to search for other alternatives. Under one version, if the buyer chooses to search for a better price, the opportunity to purchase the good at the stated price is gone. Under the second version, the seller guarantees the same price if the buyer chooses to return immediately after a search (presumably because a better price could not be found). In both cases, the buyer has a fairly good idea about what to expect from the search, but because the search is costly, he has to weigh the potential benefits of the search against its cost. It turns out (theoretically) that adding search to a simple bargaining mechanism eliminates some unsatisfactory features of bargaining theory. Our experiment reveals that the model can account for some (but not all) of the behavioral regularities. In line with recent developments in behavioral decision theory and game theory, which assume bounded rationality and preferences over the relative division of a surplus, we find that subjects follow simple rules of thumb and distributional norms in choosing strategies, which are reflected in the behavioral consistencies observed in this study.

Keywords: Bargaining; search; outside option; ultimatum game (search for similar items in EconPapers)
JEL-codes: C72 C78 C91 C92 (search for similar items in EconPapers)
Pages: 37 pages
Date: 1999-02-23
Note: Type of Document - Acrobat PDF; prepared on PC; pages: 37 ; figures: included. Group Decision and Negotiation (in press)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Journal Article: Bargaining and Search: An Experimental Study (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpex:9902003

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