This paper offers a noncooperative behaviourally-founded solution of the complete information bargaining problem where two impatient individuals wish to divide a unit pie. We formulate the game in continuous time, with unrestricted timing and content of offers. Reprising experimental work from 1960, we introduce and explore aspirational equilibrium -- a Markovian refinement of subgame perfection where behaviour is governed by aspiration values (expected payoffs). The analysis is tractable, and generates many intuitive aspects of bargaining absent from the standard temporal monopoly paradigm: wars of attrition explains delay; serious offers are concessions; offers may be turned down, strictly disappointing the proposers, or accepted, strictly helping the proposer. In particular, an endogenous `proposee' advantage arises, as opposed to the hard-wired proposer standard advantage. We find that discounted aspiration values form a martingale, and thereby compute bounds on the expected bargaining duration from observed offers. We also deduce some simple implications about consecutive offers, and relate delay times, offers, and acceptance rates. Finally, we draw into question a traditional comparative static: Ceteris paribus, more impatient players can expect more of the pie.
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Length: 32 pages Date of creation: 23 Jan 2002 Date of revision: Handle: RePEc:wpa:wuwpga:0201003
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Find related papers by JEL classification: C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Bergin, James & MacLeod, W Bentley, 1993.
"Continuous Time Repeated Games,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 21-37, February.
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