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Consideration sets and reference points in a dynamic bargaining game

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  • Karagözoğlu, Emin
  • Keskin, Kerim

Abstract

We introduce the notion of limited consideration into a bilateral, infinite-horizon, alternating-offers bargaining game. Both agents have reference-dependent preferences, and their reference points are dynamically updated. An agent's current consideration set (or focus) is influenced by the last offer he rejected such that the most salient point in that consideration set becomes his current reference point. We provide an implicit characterization of stationary subgame perfect Nash equilibria in our model. Without resorting to asymmetric or incomplete information, we show that our bargaining game can produce delay and disagreement in equilibrium. In addition to analytical results on the disagreement conditions and the nature of agreements, we provide computational comparative statics on model parameters and study their impacts on delay.

Suggested Citation

  • Karagözoğlu, Emin & Keskin, Kerim, 2024. "Consideration sets and reference points in a dynamic bargaining game," Journal of Economic Behavior & Organization, Elsevier, vol. 219(C), pages 381-403.
    • Handle: RePEc:eee:jeborg:v:219:y:2024:i:c:p:381-403
    DOI: 10.1016/j.jebo.2024.01.031
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    References listed on IDEAS

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    More about this item

    Keywords

    Bargaining; Consideration sets; Delay; Focusing; Reference dependence;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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