Exploding Offers Can Blow Up in More than One Way

Decision Analysis, Vol. 11. No. 3. pp. 171-188, September 2014

35 Pages Posted: 28 Sep 2011 Last revised: 2 Nov 2014

Nelson Lau

INSEAD - Decision Sciences

Yakov Bart

Northeastern University - D'Amore-McKim School of Business

Joseph Neil Bearden

INSEAD - Decision Sciences

Ilia Tsetlin

INSEAD

Date Written: March 25, 2014

Abstract

We investigate the use of exploding offers in job hiring situations via behavioral experiments. The pro-poser chooses between issuing an exploding or extended offer, while the responder waits for a better out-side alternative. Whereas an exploding offer must be accepted or rejected before discovering whether a better alternative will arrive, an extended offer allows the responder first to learn the outcome of the better alternative. If the proposer’s offer is accepted, the responder can reciprocate and alter the proposer’s pay-off. Across multiple studies, we find that a large portion of proposers issue exploding offers even though this results in substantially lower payoffs to themselves. These losses primarily arise from negative reciprocation by responders after accepting exploding offers. We show that decision makers exhibit behavioral consistency between their response to offers and the offers they make to others. Finally, we demonstrate that it is possible to decrease the propensity of making exploding offers through making potential negative reciprocity more salient by encouraging explicit introspection of the outcomes.

Keywords: exploding offers; deadlines; ultimatums; job search; firm employment decisions; behavioral economics.

Suggested Citation

Lau, Nelson and Bart, Yakov and Bearden, Joseph Neil and Tsetlin, Ilia, Exploding Offers Can Blow Up in More than One Way (March 25, 2014). Decision Analysis, Vol. 11. No. 3. pp. 171-188, September 2014 . Available at SSRN: https://ssrn.com/abstract=1934128 or http://dx.doi.org/10.2139/ssrn.1934128

Nelson Lau

INSEAD - Decision Sciences ( email )

United States

Yakov Bart (Contact Author)

Northeastern University - D'Amore-McKim School of Business ( email )

Boston, MA 02115
United States

Joseph Neil Bearden

INSEAD - Decision Sciences ( email )

United States

Ilia Tsetlin

INSEAD ( email )

Boulevard de Constance
77305 Fontainebleau Cedex
France

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