You May Have to Do it Again, Rocky! - an Experimental Analysis of Bargaining with Risky Joint Profits

CentER Discussion Paper No. 2003-117

38 Pages Posted: 17 Jun 2004

See all articles by Werner Guth

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Sabine Kröger

Université Laval - Département d'Économique

Ernst G. Maug

University of Mannheim Business School; European Corporate Governance Institute (ECGI)

Date Written: 2003

Abstract

We present an experimental study of a risky sequential bargaining to model negotiations in risky joint ventures that proceed through multiple stages. Our example is the production of a movie that may give rise to a sequel, so actors and producers negotiate sequentially. We compare the predictions of alternative theoretical approaches to understanding such a game. The game theoretic solution predicts (assuming risk neutrality) that actors are willing to accept wages below their outside option for first films in order to capture the gains from winning lucrative sequel contracts. This prediction is strongly rejected by the data. The data are better explained by either equity theory (equal splits) or by a game theoretic model where actors have uncertain risk aversion. The parameters of the game are calibrated to match data on 99 movies for 1989 available from a case study.

Keywords: Bargaining, risk, joint ventures, game theory

Suggested Citation

Güth, Werner and Kroger, Sabine and Maug, Ernst G., You May Have to Do it Again, Rocky! - an Experimental Analysis of Bargaining with Risky Joint Profits (2003). CentER Discussion Paper No. 2003-117. Available at SSRN: https://ssrn.com/abstract=556951 or http://dx.doi.org/10.2139/ssrn.556951

Werner Güth (Contact Author)

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Sabine Kroger

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada

Ernst G. Maug

University of Mannheim Business School ( email )

L9, 1-2
Mannheim, 68131
Germany
+49 621 181-1952 (Phone)

HOME PAGE: http://cf.bwl.uni-mannheim.de/de/people/maug/

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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