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Bargaining Outcomes as the Result of Coordinated Expectations: An Experimental Study of Sequential Bargaining

Author

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  • Jeffrey Carpenter

Abstract

Experimental studies of two-person sequential bargaining demonstrate that the concept of subgame perfection is not a reliable point predictor of actual behavior. Alternative explanations argue that 1) fairness influences outcomes and 2) that bargainer expectations matter and are likely not to be coordinated at the outset. This paper examines the process by which bargainers in two-person dyads coordinate their expectations on a bargaining convention and how this convention is supported by the seemingly empty threat of rejecting positive but small subgame perfect offers. To organize the data from this experiment, we develop a Markov model of adaptive expectations and bounded rationality. The model predicts actual behavior quite closely.

Suggested Citation

  • Jeffrey Carpenter, 2002. "Bargaining Outcomes as the Result of Coordinated Expectations: An Experimental Study of Sequential Bargaining," Middlebury College Working Paper Series 0204, Middlebury College, Department of Economics.
    • Handle: RePEc:mdl:mdlpap:0204
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    File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0204.pdf
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    Citations

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    Cited by:

    1. Jeffrey Carpenter & Peter Matthews, 2005. "No Switchbacks: Rethinking Aspiration-Based Dynamics in the Ultimatum Game," Theory and Decision, Springer, vol. 58(4), pages 351-385, June.
    2. Carpenter, Jeffrey P., 2003. "Is fairness used instrumentally? Evidence from sequential bargaining," Journal of Economic Psychology, Elsevier, vol. 24(4), pages 467-489, August.
    3. Carpenter, Jeffrey & Rudisill, McAndrew, 2003. "Fairness, escalation, deference, and spite: strategies used in labor-management bargaining experiments with outside options," Labour Economics, Elsevier, vol. 10(4), pages 427-442, August.

    More about this item

    Keywords

    Sequential Bargaining; Experiment; Convention; Fairness; Finite Markov Chain; Bounded Rationality;
    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
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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