Bargaining Outcomes as the Result of Coordinated Expectations: An Experimental Study of Sequential Bargaining

Posted: 20 May 2001

See all articles by Jeffrey P. Carpenter

Jeffrey P. Carpenter

Middlebury College - Department of Economics; IZA Institute of Labor Economics

Date Written: October 4, 2000

Abstract

Experimental studies of two-person sequential bargaining demonstrate that the concept of subgame perfection is not a reliable point predictor of actual behavior. Alternative explanations argue that 1) fairness influences outcomes and 2) that bargainer expectations matter and are likely not to be coordinated at the outset. This paper examines the process by which bargainers in two-person dyads coordinate their expectations on a bargaining convention and how this convention is supported by the seemingly empty threat of rejecting positive but small subgame perfect offers. To organize the data from this experiment, we develop a Markov model of adaptive expectations and bounded rationality. The model predicts actual behavior quite closely.

Keywords: Sequential Bargaining, Experiment, Convention, Fairness, Finite Markov Chain, Bounded Rationality

JEL Classification: C72, C78, C91, D84

Suggested Citation

Carpenter, Jeffrey P., Bargaining Outcomes as the Result of Coordinated Expectations: An Experimental Study of Sequential Bargaining (October 4, 2000). Available at SSRN: https://ssrn.com/abstract=267997

Jeffrey P. Carpenter (Contact Author)

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
802-443-3241 (Phone)
802-443-2084 (Fax)

HOME PAGE: http://community.middlebury.edu/~jcarpent/index.ht

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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