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Bargaining with own-preference uncertainty: An experiment

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  • Bar, Regev
  • Nicholas, Aaron

Abstract

While ‘standard’ theory argues that more information typically increases efficiency from exchange, the literature on fairness and bargaining suggests that information may inhibit agreements. However, the literature has typically focussed on information related to the payoffs of the other party. In many real-world interactions, a buyer is uncertain about their own value for a good they are purchasing. We consider a series of modified ultimatum games where we vary buyers’ certainty about their own values. We find that agreements increase when buyers discover their values. However, buyers potentially lose from this discovery if they are uncertain about sellers’ costs. Our results are driven by an increased aversion towards uncertainty when buyers are uncertain about both their own and the seller's payoff. This ‘twofold uncertainty effect’ cannot be rationalised by outcome-based other-regarding preferences and extends current understanding of the influence of uncertainty on perceptions of fair exchange.

Suggested Citation

  • Bar, Regev & Nicholas, Aaron, 2024. "Bargaining with own-preference uncertainty: An experiment," European Economic Review, Elsevier, vol. 162(C).
  • Handle: RePEc:eee:eecrev:v:162:y:2024:i:c:s0014292123002799
    DOI: 10.1016/j.euroecorev.2023.104651
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    More about this item

    Keywords

    Own-preference uncertainty; Fair price; Uncertainty effect; Bargaining experiment;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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