The power of outside options in the presence of obstinate types

We experimentally investigate the role of two-sided reputation-building in dynamic bargaining. In the absence of outside options, rational bargainers have an incentive to imitate obstinate types that are committed to an aggressive demand, inducing delay. Outside options remove this incentive and ens...

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Bibliographic Details
Published inGames and economic behavior Vol. 136; pp. 454 - 468
Main Authors Heggedal, Tom-Reiel, Helland, Leif, Våge Knutsen, Magnus
Format Journal Article
LanguageEnglish
Published Elsevier Inc 01.11.2022
Subjects
Bargaining
Experiment
Obstinate types
Reputation
C78
Bargaining
Experiment
Obstinate types
C91
Reputation
D82
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Summary:We experimentally investigate the role of two-sided reputation-building in dynamic bargaining. In the absence of outside options, rational bargainers have an incentive to imitate obstinate types that are committed to an aggressive demand, inducing delay. Outside options remove this incentive and ensure immediate agreement whenever two rational bargainers match. Our data support the hypothesis that outside options cut down on imitation and ensure timely agreements, but only if subjects share a belief about what constitutes obstinacy. Further, we find that outside options are exercised excessively and that efficiency is no better than it is in their absence. We ascribe this result to the presence of fairness preferences in the subject pool.
ISSN:0899-8256
1090-2473
DOI:10.1016/j.geb.2022.10.011