The Role of Inferences in Sequential Bargaining with One-Sided Incomplete Information: Some Experimental Evidence

Abstract

Two experiments tested a sequential bargaining model with one-sided incomplete information and time discounting. The findings suggest that although the comparative statics of the normative model are somewhat descriptive of the qualitative features of the data, bargainers do not conform to the signaling process that underlies bargaining models with incomplete information. Rather than assess and refine a probabilistic assessment of the private information based on the informed bargainer's behavior, uninformed bargainers infer their opponents' competitiveness. Further, bargainers are unable to use cost of delay in the strategic manner dictated by the equilibrium solution. The evidence suggests that although bargaining behavior is primarily determined by situational constraints, bargainers attribute their opponents' behavior to personal disposition, such as their level of competitiveness.