Honesty and Informal Agreements
46 Pages Posted: 1 Sep 2012 Last revised: 1 Sep 2016
Date Written: August 30, 2016
We develop, and experimentally test, models of informal agreements. Agents are assumed to be honest but suffer costs of overcoming temptations. We extend two classical bargaining solutions -- split-the-difference and deal-me-out -- to this informal agreement setting. For each solution there are two natural ways to do this, leaving us with 2x2 models to explore. In the experiment, a temptations-constrained version of deal-me-out emerges as the clear winner.
Keywords: agreement, bargaining, behavioral economics, contract, deal, experiment, honesty, lost wallet game, negotiation, temptation
JEL Classification: C70, C91
Suggested Citation: Suggested Citation