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Judgment Accuracy and the Asymmetric Cost of Errors in Distributive Bargaining

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  • William P. Bottom

    (John M. Olin School of Business, Washington University)

  • Paul W. Paese

    (University of Missouri)

Abstract

Bargainers must generally attempt to judge their counterparts' preferences, beliefs, and alternatives to settlement. Both descriptive and prescriptive theorists have assumed that an accurate perception of the other bargainer's reservation price (r.p.) is advantageous. Yet, unbiased judgments are optimal only when the costs of underestimation and overestimation are symmetric. Optimistic bias has been found to have adaptive value in judgments related to other types of tasks. In two studies we examined the relationship between perceptions of the bargaining zone and settlements in essentially distributive bargaining games. In the largely exploratory study one, bargainers were generally optimistically biased (i.e., they thought their counterpart could concede more than s/he really could) and optimism was positively correlated with profitability. In study 2 we manipulated information to induce accurate or biased perceptions. Optimistically biased negotiators again reached more profitable settlements than accurate or pessimistically biased negotiators. Optimism did not increase the likelihood of impasse in either study. Nor did it damage the relationship between the parties. Initial optimism appears to play an adaptive role in bargaining.

Suggested Citation

  • William P. Bottom & Paul W. Paese, 1999. "Judgment Accuracy and the Asymmetric Cost of Errors in Distributive Bargaining," Group Decision and Negotiation, Springer, vol. 8(4), pages 349-364, July.
  • Handle: RePEc:spr:grdene:v:8:y:1999:i:4:d:10.1023_a:1008698408099
    DOI: 10.1023/A:1008698408099
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    References listed on IDEAS

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    Cited by:

    1. Wolfram E. Lipp & Remigiusz Smolinski & Peter Kesting, 2023. "Beyond the First Offer: Decoding Negotiation Openings and Their Impact on Economic and Subjective Outcomes," Group Decision and Negotiation, Springer, vol. 32(2), pages 395-433, April.
    2. Breitmoser, Yves, 2019. "Knowing me, imagining you: Projection and overbidding in auctions," Games and Economic Behavior, Elsevier, vol. 113(C), pages 423-447.
    3. Hendrik Hakenes & Svetlana Katolnik, 2018. "Optimal Team Size and Overconfidence," Group Decision and Negotiation, Springer, vol. 27(4), pages 665-687, August.
    4. Breitmoser, Yves, 2017. "Knowing Me, Imagining You:," Rationality and Competition Discussion Paper Series 36, CRC TRR 190 Rationality and Competition.

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