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 Güth

Werner Güth

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; LUISS Guido Carli University

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 Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

LUISS Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

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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