When is Bargaining Successful? Negotiated Division of Tournament Prizes

Abstract

We study bargaining at the end of high-stakes poker tournaments, in which participants often negotiate a division of the prize money rather than bear the risk of playing the game until the end. This setting is ideal for studying bargaining: the stakes are substantial, there are no restrictions on the negotiations or the terms of a deal, outside options are clearly defined, there are no agency conflicts, and there is little private information. Even in this setting, we find that risk-reducing deals often are not completed or even proposed. As expected, we find that players are more likely to negotiate when the gains to trade are large and when the coordination costs are lower. Surprisingly, although the likelihood of a successful deal is increasing in the stakes, this relation is driven only by the tournaments with the very largest prizes. It is also puzzling that the success of a proposal depends on who makes it, but initiating a proposal does not affect the proposing player's payoff in a completed deal. Divisions of prizes are closely related to players' outside options, while at the same time one of two focal points are often chosen. We also find intriguing differences between two-player deals and deals with three or more players.

Keywords: Bargaining, Negotiations, Poker

JEL Classification: C78, C93, D7