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Expectations matter in bottom-line setting: Theory and evidence

Author

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  • Chen, Peikun
  • Li, Jianbiao
  • Pan, Jingjing
  • Zhu, Chengkang

Abstract

The bottom-line, or minimum acceptable offer (MAO), is a crucial concept in real-world economic negotiations. This study demonstrated a causal relationship between responders’ expectations of proposers’ offer and their MAOs setting, in a controlled ultimatum game. We develop three theoretical models (reference dependence, frustration aversion and bounded rationality) to further investigate the underlying mechanism. By considering two distinct scenarios - responders setting MAOs before and after knowing the proposer's offer - we generate distinguishable predictions from our models. We then conduct two experiments to test these predictions, exogenously manipulating subjects’ offer expectations and comparing the observed shifts in MAOs to our theoretical predictions. Our findings indicate that bounded rationality significantly contributes to the causal effect of responders’ expectations on their MAOs, providing a new perspective on how expectations shape bargaining behavior. Furthermore, our results help reconcile divergent findings under the strategy method and direct-response method, highlighting the effects of expectations as a key driver alongside emotion.

Suggested Citation

  • Chen, Peikun & Li, Jianbiao & Pan, Jingjing & Zhu, Chengkang, 2025. "Expectations matter in bottom-line setting: Theory and evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 231(C).
  • Handle: RePEc:eee:jeborg:v:231:y:2025:i:c:s0167268125000642
    DOI: 10.1016/j.jebo.2025.106944
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    More about this item

    Keywords

    Minimum acceptable offer; Expectation; Bounded rationality; Strategy method;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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