Agreement by Conduct as a Coordination Device

Mind Soc (2020) 19:77-90 DOI 10.1007/s11299-020-00225-5

8 Pages Posted: 28 Mar 2011 Last revised: 8 Jun 2020

Date Written: March 30, 2020

Abstract

In distributive bargaining, bargainers may have an impulse to bluff and thereby risk an impasse. The current paper does not explain bargaining impasses. For our purposes, it suffices to recognize that bargaining impasses may occur without assuming irrationality. The design problem is to ensure that impasses are avoided as often as possible. One possible solution is to allow for the formation of an agreement by “conduct”. The ‘agreement by conduct’ outcome as a commercial norm may coordinate bargainers’ expectations so as to enable them to perform the same contract, even if they made written demands above ½ (as a bluff). The idea that the “deal-is-on” philosophy as expressed in the “agreement-by-conduct” rule affects and promotes economic exchange is probed in the context of a modified Divide-the-Dollar (DD) game.

Keywords: bluff, bargaining impasse, focal point, fairness norm, commercial norm, agreement by conduct, coordination device, equilibrium selection, divide the dollar

JEL Classification: A12, A13, C72, D63, D69, D86, K00

Suggested Citation

Kanning, Arnald J., Agreement by Conduct as a Coordination Device (March 30, 2020). Mind Soc (2020) 19:77-90 DOI 10.1007/s11299-020-00225-5, Available at SSRN: https://ssrn.com/abstract=1796684 or http://dx.doi.org/10.2139/ssrn.1796684

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