The effectiveness of the carrot and the stick in increasing dyadic outcomes during duopolistic bargaining

Abstract

Bargaining is a form of decision making which occurs between two or more individuals of some subhuman species of animals as well as human beings in dyads, multi-person groups, organizations, societies, and supranational systems. This article deals with human dyads. Theory and research on the impact of threats on bargaining outcomes are mixed: Some studies find that the use of threats impairs outcomes relative to conditions in which no threats are made; other studies find that threats may be used for signaling and coordination, improving outcomes. Similarly, the literature on the effects of promises is mixed: Some studies suggest that promises lead to trust and openness, and lead to more profitable bargaining; other studies find that promises are used to deceive and manipulate the other bargainer, leading to less profitable outcomes. There is little literature on the joint effects of threats and promises in dyadic bargaining. In the present study, bargainers playing a duopoly cross-maximization game (analogous to the prisoner's dilemma) were provided with either threat messages (T), promise messages (P), threat and promise messages (TP), or no messages, in a factorial design. Dyad profits were ordered T, TP, P, N; that is, dyads with threats made the highest bids and earned the greatest payoffs. Dyad members in the P and TP conditions used the promise messages deceptively to exploit each other. Dyad members in the T and TP conditions used the threat messages to coordinate choices at mutually profitable levels and punished defections from these high levels by the imposition of fines. Dyad outcomes were linearly related to the use of fines and the number of exploitative promises made.