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Bargaining and Reputation: An Experiment on Bargaining in the Presence of Behavioral Types

38 Pages Posted: 5 Oct 2011 Last revised: 3 Apr 2014

Matthew Embrey

University of Sussex, Department of Economics

Guillaume R. Frechette

New York University (NYU) - Department of Economics

Steven F. Lehrer

Queen's University - School of Policy Studies; National Bureau of Economic Research (NBER)

Date Written: April 1, 2014

Abstract

We conduct a series of laboratory experiments to understand what role commitment and reputation play in bargaining. The experiments implement the Abreu and Gul (2000) bargaining model that demonstrates how introducing behavioral types, which are obstinate in their demands, creates incentives for all players to build reputations for being hard bargainers. The data are qualitatively consistent with the theory, as subjects mimic induced types. Furthermore, we find evidence for the presence of complementary types, whose initial demands acquiesce to induced behavioral demands. However, there are quantitative deviations from the theory: subjects make aggressive demands too often and participate in longer conflicts before reaching agreements. Overall, the results suggest that the Abreu and Gul (2000) model can be used to gain insights to bargaining behavior, particularly in environments where the process underlying obstinate play is well established.

Keywords: Bargaining, reputation, experiments

JEL Classification: C72, C78, C90

Suggested Citation

Embrey, Matthew and Frechette, Guillaume R. and Lehrer, Steven F., Bargaining and Reputation: An Experiment on Bargaining in the Presence of Behavioral Types (April 1, 2014). Available at SSRN: https://ssrn.com/abstract=1938474 or http://dx.doi.org/10.2139/ssrn.1938474

Matthew Embrey

University of Sussex, Department of Economics ( email )

Falmer, Brighton BN1 9SL
United Kingdom

HOME PAGE: http://www.sussex.ac.uk/economics/people/peoplelists/person/363998

Guillaume R. Frechette (Contact Author)

New York University (NYU) - Department of Economics ( email )

19 West Fourth St., 6th floor
New York, NY 10012
United States

HOME PAGE: http://https://files.nyu.edu/gf35/public/html/econ.htm

Steven F. Lehrer

Queen's University - School of Policy Studies ( email )

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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