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What Price Compromise? Testing a Possibly Surprising Impliction of Nash Bargaining Theory

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Listed:
  • John Bone
  • John Hey
  • John Suckling

Abstract

This paper provides a very simple experimental test of a prediction of Nash Bargaining Theory that seems counterintuitive. The context is a simple bargaining problem between two players who have to agree a choice from three alternatives. One alternative favors one player and a second favors the other. The third is a fair compromise, but is excluded as an agreed choice by Nash Bargaining Theory. Our experimental results show that agreement on this third outcome occurs rather often. So the Nash theory is not well-supported by our evidence, although neither is a Strategic explanation of the data. The Nash-precluded outcome appeals because of its compromise nature; indeed, players are prepared to pay a price which is (according to the Nash theory) irrationally high, in order to reach a fair compromise.

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  • John Bone & John Hey & John Suckling, "undated". "What Price Compromise? Testing a Possibly Surprising Impliction of Nash Bargaining Theory," Discussion Papers 05/05, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:05/05
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    References listed on IDEAS

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    1. Roth, Alvin E & Murnighan, J Keith, 1982. "The Role of Information in Bargaining: An Experimental Study," Econometrica, Econometric Society, vol. 50(5), pages 1123-1142, September.
    2. Cox, James C. & Friedman, Daniel & Gjerstad, Steven, 2007. "A tractable model of reciprocity and fairness," Games and Economic Behavior, Elsevier, vol. 59(1), pages 17-45, April.
    3. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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