Honesty and Informal Agreements

46 Pages Posted: 1 Sep 2012 Last revised: 1 Sep 2016

See all articles by Martin Dufwenberg

Martin Dufwenberg

University of Arizona - Department of Economics

Maroš Servátka

Macquarie Graduate School of Management - MGSM Experimental Economics Laboratory

Radovan Vadovic

Instituto Tecnológico Autónomo de México (ITAM)

Date Written: August 30, 2016

Abstract

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

Dufwenberg, Martin and Servátka, Maroš and Vadovic, Radovan, Honesty and Informal Agreements (August 30, 2016). Available at SSRN: https://ssrn.com/abstract=2136753 or http://dx.doi.org/10.2139/ssrn.2136753

Martin Dufwenberg

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

Maroš Servátka (Contact Author)

Macquarie Graduate School of Management - MGSM Experimental Economics Laboratory ( email )

Sydney
Australia

Radovan Vadovic

Instituto Tecnológico Autónomo de México (ITAM) ( email )

Av. Camino a Sta. Teresa 930
Col. Héroes de Padierna
Mexico City, D.F. 01000, Federal District 01080
Mexico

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