Negotiation as the Art of the Deal
90 Pages Posted: 30 Apr 2018
Date Written: April 1, 2018
Negotiation is a ubiquitous and consequential form of economic interaction. It is deal-making in the absence of a designer. We propose a theory of negotiation in which deals have many aspects. This leads to new results showing that efficient trade is possible even with substantial asymmetric information, which we show via both theory and experiments. In a robust class of settings of asymmetric information, the benefits of identifying areas of mutual gain redirect agents away from posturing and manipulating their share of the pie towards growing the pie. We show that equilibria are efficient, with significant implications for applications.
Keywords: Negotiation, Bargaining, Exchange, Trade, Multiple Items, Linking, Efficiency, Experiment
JEL Classification: A13, C72, C78, D47, D82, C92
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