California Institute of Technology

Division of the Humanities and Social Sciences

Bargaining and Reputation: Experimental Evidence on Bargaining in the Presence of Irrational Types

25 Baxter
Nov 10, 2009 4:00 PM
Guillaume Frechette, assistant professor of economics, New York University
We conduct two sets of laboratory experiments to understand what role if any, commitment and reputation play in bargaining. The experiments implement the Abreu and Gul (2000) bargaining model that demonstrates how introducing behavioral types, which are obstinate in their demands, creates incentives for all players to build reputations for being hard bargainers. The data are qualitatively consistent with the theory, as subjects mimic induced types. Furthermore, we find evidence for the emergence of complementary types, whose initial demands acquiesce to induced obstinate demands. However, there are important quantitative deviations from the theory: subjects are inclined to make aggressive demands too often, and participate in excessively long conflicts before reaching agreements. We present evidence that these are in part due to uncertainty over the set obstinate types.
Series: Bray Theory Workshop
For more information, please phone Ext. 4220 or email sjc@hss.caltech.edu

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