Sharing with the powerless third: Other-regarding preferences in dynamic bargaining

• Published in: Journal of economic behavior & organization Vol. 197; pp. 341 - 355
• Main Author: Schwaninger, Manuel
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.05.2022
• Subjects: Experiment; Free-form bargaining; Nash bargaining solution; Social preferences; Third Agent; D64; C78; D9; Experiment; Third Agent; Nash bargaining solution; C92; Free-form bargaining; Social preferences
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2022.03.002

•I examine how other-regarding preferences aggregate in a free-form bargaining experiment.•I find that bargainers retain equal payoffs when they transfer payoffs to third subjects.•The same subjects vary the transfers to third subjects considerably depending on their bargaining partner.•The formal analysis can link the results to the individual preferences of the bargainers.•Assuming pairwise inequality aversion explains 80% of the variance of the bargaining agreements. Other-regarding preferences are powerful drivers of human behavior, leading individuals to forgo their own economic gains to share with others. However, when subjects with different levels of other-regarding concern bargain about how to distribute payoffs, it is unclear whether joint bargaining decisions reflect their individual preferences. In this free-form bargaining experiment, I examine how other-regarding preferences of two subjects interact and influence negotiated distribution decisions when they allocate payoffs between themselves and a powerless third subject. The data reveals that fairness between the bargainers is more important than fairness towards the third subject; bargainers only allocate payoff shares to third subjects if the other bargainer is willing to allocate the same amount, even if their other-regarding preferences differ strongly from each other when revealed individually. Through the formal analysis, I can link the results to the other-regarding preferences elicited individually and, thereby, provide new insights into the interaction of other-regarding preferences in joint decision-making environments.