Aspirational Bargaining

Lones Smith and Ennio Stacchetti
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Ennio Stacchetti: The University of Michigan

Game Theory and Information from University Library of Munich, Germany

Abstract: This paper offers a noncooperative behaviourally-founded solution of the complete information bargaining problem where two impatient individuals wish to divide a unit pie. We formulate the game in continuous time, with unrestricted timing and content of offers. Reprising experimental work from 1960, we introduce and explore aspirational equilibrium -- a Markovian refinement of subgame perfection where behaviour is governed by aspiration values (expected payoffs). The analysis is tractable, and generates many intuitive aspects of bargaining absent from the standard temporal monopoly paradigm: wars of attrition explains delay; serious offers are concessions; offers may be turned down, strictly disappointing the proposers, or accepted, strictly helping the proposer. In particular, an endogenous `proposee' advantage arises, as opposed to the hard-wired proposer standard advantage. We find that discounted aspiration values form a martingale, and thereby compute bounds on the expected bargaining duration from observed offers. We also deduce some simple implications about consecutive offers, and relate delay times, offers, and acceptance rates. Finally, we draw into question a traditional comparative static: Ceteris paribus, more impatient players can expect more of the pie.

Keywords: subgame perfect equilibrium; aspiration; extensive form (search for similar items in EconPapers)
JEL-codes: C78 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2002-01-23
New Economics Papers: this item is included in nep-evo and nep-gth
Note: Type of Document - Adobe acrobat [pdf]; prepared on IBM PC; to print on HP/PostScript; pages: 32 ; figures: included
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Citations: View citations in EconPapers (6)

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