Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining

32 Pages Posted: 8 Jan 2009  

Eric J. Johnson

Columbia Business School - Marketing

Colin Camerer

California Institute of Technology - Division of the Humanities and Social Sciences

Sankar Sen

City University of New York (CUNY) - Department of Marketing and International Business

Talia Rymon

affiliation not provided to SSRN

Date Written: May 2002

Abstract

We did experiments in a three-round bargaining game where the (perfect) equilibrium offer was $1.25 and an equal split was $2.50. The average offer was $2.11. Patterns of information search (measured with a computerized information display) show limited lookahead rather than backward induction. Equilibrium theories which adjust for social utilities (reflecting inequality-aversion or reciprocity) cannot explain the results because they predict subjects will make equilibrium offers to "robot" players, but offers to robots are only a little lower. When trained subjects (who quickly learned to do backward induction) bargained with untrained subjects, offers ended up halfway between equilibrium and $2.11.

Keywords: bargaining, experimental economics, bounded rationality, behavioral economics, behavioral game theory, fairness, limited cognition

Suggested Citation

Johnson, Eric J. and Camerer, Colin and Sen, Sankar and Rymon, Talia, Detecting Failures of Backward Induction: Monitoring Information Search in Sequential Bargaining (May 2002). Journal of Economic Theory, Vol. 104, No. 1, 2002. Available at SSRN: https://ssrn.com/abstract=1324779

Eric J. Johnson (Contact Author)

Columbia Business School - Marketing ( email )

New York, NY 10027
United States

Colin F. Camerer

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States
626-395-4054 (Phone)
626-432-1726 (Fax)

Sankar Sen

City University of New York (CUNY) - Department of Marketing and International Business ( email )

One Bernard Baruch Way, B12-240
New York, NY 10010-5585
United States

Talia Rymon

affiliation not provided to SSRN

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