Bargaining Behavior Research Articles

Investment and Bargaining in Joint Ventures: A Family Decision-Making Experiment

Bilateral joint ventures, such as marriage, are economically inspired by their prospects of labor division and specialization. However, specialization makes the partnerwho investsmore in relation-specificqualificationsmore exploitable (holdup problem). In a two-person experiment we study investment and bargaining behavior when specialization improves the chances to win a large prize. A low (full) joint venture relies on an intermediate (high) degree of specialization and low (high) costs in case of failure, e.g., a divorce. Results show that participants choose endogenouslymore efficient joint-venture types and acceptminor attempts at exploitation when bargaining over the revenues of the joint venture.

Fairness in Bargaining

This paper uses historical and contemporary philosophical discussions of fairness to present a structural approach to the definition of fairness. After establishing a set of standards (not a specific definition), we assess the impact of fairness in negotiations and bargaining. Our analysis concludes that truly fair behavior is absent in bargaining and negotiations. Instead, behaviors that have been called just can also be characterized as self-interested. Our review suggests that the term fairness has been used rather loosely, as a convenient label or as a more palatable alternative to self-interested explanations for an individual's choices. For reasons of both parsimony and accuracy, we recommend that the self-interest of the actors be carefully considered before calling their bargaining behavior fair.

Dyadic processes of disclosure and reciprocity in bargaining with communication

AbstractWe offer a study revealing the mechanisms through which communication helps actual bargaining behavior outperform economic predictions. The possibility of individually strategic behavior in the presence of private information leads to game‐theoretic predictions of less than full efficiency. We present a one‐stage, simultaneous offers bargaining game in which buyers and sellers have independent, privately held valuations for the item being sold (i.e. a bilateral auction with two‐sided private information). In three communication treatments, parties are: (a) allowed face‐to‐face communication prior to submitting offers; (b) allowed written communication prior to submitting offers; or (c) allowed no‐communication prior to submitting offers. When parties are allowed pre‐play communication, we find nearly full efficiency (98%). We examine two systematically predictable aspects of dyadic interaction—disclosure and reciprocity—to explain how negotiators achieve this efficiency. Copyright © 2002 John Wiley & Sons, Ltd.

Third party bargaining and contract terms: a link over time?

To evaluate whether prior pharmacy bargaining process strategies and pharmacy dependence on third parties affect the bargaining power of pharmacies in price negotiations with third parties. One-time survey. Random sample of 900 independent and small chain pharmacies in nine states: Colorado, Connecticut, Georgia, Kentucky, Minnesota, Oklahoma, Oregon, Pennsylvania, and Wisconsin. Two hundred sixteen of the returned surveys contained sufficient responses for this analysis. Survey data on pharmacy bargaining power and prior pharmacy bargaining strategies, pharmacy dependence, and market characteristics were analyzed using multiple regression in a previously developed and modified provider/third party bargaining model. Pharmacy bargaining power. Pharmacy bargaining power varied across our sample. Pharmacy bargaining power was positively related to whether a pharmacy previously bargained with the third parties, negatively related to prior requests for contract changes, and negatively related to the pharmacy's dependence on third parties in total. Pharmacy bargaining power is related to the bargaining strategies employed by pharmacies during the previous year and the dependence of pharmacies on third party payers in total. With the prevalence of "take-it-or-leave-it" contracts from third parties, prior pharmacy bargaining behavior may affect the initial terms of the contracts that pharmacies are offered.

(What) do unions maximise? Evidence from survey data

Highly formalised models of union behaviour have been developed and are widely used within neoclassical economics. This approach is justified by the argument that most goals pursued by unions can be reduced to a wage (or wage-equivalent) employment trade-off. However, the strong assumptions made about union goals and preferences, how these are determined and the range of issues over which a union will seek to bargain with a firm are not supported by extensive empirical evidence. This paper explores these issues through a survey of union leaders to ascertain the range of union goals and their preferences, and the types of issues over which unions bargain with employers. The results of the survey present convincing evidence that standard neoclassical models do not adequately capture union bargaining behaviour, or union goals and preferences. The findings presented here also throw open, but do not resolve, the question of whether unions are 'rational maximisers'. The most inter esting result—not widely found within the economics or industrial relations literature—concerns the nature of union bargaining preferences. Union bargaining over employment appears to be asymmetric around current levels of employment, in that unions appear to care more about the employment implications of their bargain ing strategies when they are likely to result in employment decreases.

Caveats for Cross‐Border Negotiators

Scholars and practitioners have detailed a number of ways that differences in national culture can affect bargaining behavior: from surface etiquette and protocol to deeper cultural characteristics and to systematic variations in decision making and governance. Such cross‐national analysis can be quite useful but is prone to at least four hazardous fallacies described in this article and illustrated, in some cases, by probabilistic reasoning. Along with suggestions for avoiding them, these fallacies include: (1) “The John Wayne v. Charlie Chan Fallacy” (stereotyping); (2) “The Rosetta Stone Fallacy” (overattribution); (3) The Visual Flight Rules Fallacy (skewed perceptions and information processing); and (4) “St. Augustine's Fallacy” (“When in Rome.”).

The Impact of Compulsory Arbitration on Bargaining Behavior - An Experimental Study

A series of experiments compares bargaining behavior in a Rubinstein game under three different settings: no arbitration, conventional and final offer arbitration. Under no arbitration disputes with zero payoffs were around 10%, while the pie was equally split in less than half of the cases. Under conventional arbitration - where the arbitrator is free in choosing his award - every third negotiation ended in dispute giving incidence for a modified chilling effect. Under final offer arbitration - where the arbitrator has to award to the bargainers either one of their final offers - there was only a small increase of disputes while equal split agreements have doubled to 80%, an outcome which can be described as a destiny effect. The experiment shows final offer arbitration, though having lower dispute rates, interferes more with bargaining behavior than conventional arbitration where the bargaining behavior was similar to the no-arbitration treatment. Under final offer arbitration, negotiators adjust their bargaining strategy to the arbitrator's expected award.

High Stakes and Acceptance Behavior in Ultimatum Bargaining

This paper presents the results of a within-subject experiment testing whether an increase in the monetary stakes by a factor of 50 – which had never been done before – influences individual behavior in a simple ultimatum bargaining game. Contrary to current wisdom, we found that lowest acceptable offers stated by the responder are proportionally lower in the high-stake condition than in the low-stake condition. This result may be interpreted in terms of the type of utility functions which characterize the subjects. However, in line with prior results, we find that an important increase of the monetary stakes in the ultimatum game has no effect on the offers made by the proposer. Yet, the present research suggests that the reasons underlying these offers are quite different when the stakes are high.

Cultural Differences in Ultimatum Game Experiments: Evidence from a Meta-Analysis

This paper reports the findings of a meta-analysis of 37 papers with 75 results from ultimatum game experiments. We find that on average the proposer offers 40% of the pie to the responder. This share is smaller for larger pie sizes and larger when a strategy method is used or when subjects are inexperienced. On average 16% of the offers is rejected. The rejection rate is lower for larger pie sizes and for larger shares offered. Responders are less willing to accept an offer when the strategy method is employed. As the results come from different countries, meta-analysis provides an alternative way to investigate whether bargaining behavior in ultimatum games differs across countries. We find differences in behavior of responders (and not of proposers) across geographical regions. With one exception, these differences cannot be attributed to various cultural traits on which for instance the cultural classifications of Hofstede (1991) and Inglehart (2000) are based.

Adaptive Learning versus Punishment in Ultimatum Bargaining

Adaptive learning and a fairness motive we call “punishment” are the basis for two prominent and substantially different types of theories of ultimatum bargaining behavior. We compare adaptive learning and fairness in an experiment that involves punishment and reward versions of the ultimatum game. We draw conclusions concerning the abilities and limitations of both types of theories. The results shed light on how learning and fairness interact, information that should be useful in constructing a more comprehensive model. Journal of Economic Literature Classification Numbers: C78, C91, D83.

Time Preferences: Do They Matter in Bargaining?

Experimental studies of bargaining generally impose time preferences' on subjects, in the sense that in case of disagreement, the experimenter reduces the size of the surplus bargained over by imposing exogenously some monetary cost. Contrary to this practice, in this study time preferences are first elicited in a preliminary phase, and then bargaining begins. I show that although subjects are sensitive to the timing of a monetary reward, this plays no role in determining bargaining behaviour. Furthermore, when the bargaining game is played in conventional experimental setting with monetary costs of delay, these do have an impact on subjects' conduct in negotiations.

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

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.

Teaching Ideas: Bargaining Styles and Negotiation: The Thomas‐Kilmann Conflict Mode Instrument in Negotiation Training

Many negotiation courses and executive training programs cover the subject of bargaining styles. The Thomas‐Kilmann Conflict Mode Instrument (TKI) is a commonly used psychological assessement tool that helps students and teachers probe this topic. The TKI measures the five conflict management facets proposed by the Dual Concerns Model: competing, collaborating, compromising, accommodating, and avoiding. The author has used the TKI extensively in teaching executives about bargaining styles, and discusses the strengths and weaknesses of it as a teaching aid. He also presents research on the frequency with which various TKI scores are reported in business programs. Finally, he provides thumbnail sketches of typical bargaining behavior exbibited by people with very strong and very weak predispositions for each of the five conflict modes. Some implications of theses behaviors for specific professional audiences are explored.

Open Covenants, Privately Arrived At

This Paper analyses strategic bargaining between two agents each of whom negotiates on behalf of a principal. The principals face uncertainty about the bargaining skills of their agents as measured by the agents' abilities to assess the opponent's preferences. Agents then have an incentive to promote their reputation as skilled bargainers through their bargaining behaviour. We compare two different scenarios: open-door bargaining, where the principals observe the entire bargaining process, and closed-door bargaining, where they observe only the final outcome. We show that with open doors, the higher visibility of agents' actions induces low-skill agents to negotiate more aggressively than behind closed doors in order to distort their principals' inferences. Since this posturing increases the probability of delay or disagreement, closed-door bargaining is more efficient.

The Effect of Perceived Seller Reservation Prices on Buyers' Bargaining Behavior in a Flexible-Price Market

Previous laboratory experimental studies of bargaining have shown that a bargainer's perception of an opponent's reservation price influences the bargainer's own counteroffer, concession magnitude, and ultimatum offer. However, most of these studies have been conducted in countries where bargaining is not an everyday commercial phenomenon, and so respondents may not be expected to have much prior experience with bargaining. The present study examines these relationships within the context of a field experiment conducted in a country where bargaining is a common mode of establishing prices for a wide range of products in the ordinary course of commercial transactions. A number of hypotheses derived from the previous studies are supported by findings of the present study, thus confirming the external validityofthepreviousfindings.

LINKING FRAMES IN NEGOTIATIONS: GAINS, LOSSES AND CONFLICT FRAME ADOPTION

Two distinct literatures have investigated the impact of negotiator frames. Both literatures demonstrate that negotiator frames significantly influence both bargaining behavior and negotiated outcomes. These two literatures, however, offer completely different conceptualizations of what negotiator frames actually are. In this article we classify these two conceptualizations as reference frames, the referent‐dependent perception of outcomes, and conflict frames, a multi‐dimensional orientation toward conflict. We report results from an experiment that links these two types of frames. We find that loss‐framed negotiators adopt conflict frames that are more win‐oriented and task‐oriented than the conflict frames gain‐framed negotiators adopt. Our results offer insight into the frame adoption process and have implications for dispute resolution and negotiation practice.

Ultimatum Bargaining Behavior in Israel, Japan, Slovenia, and the United States: A Social Utility Analysis

We explain the main features of the results of the four-country ultimatum bargaining experiments of Roth et al. (1991), Amer. Econom. Rev.81, 1068–1095) by a social utility model. The specification of social utility of a player has two parts: a linear combination of the monetary payoffs of the proposer and the responder and payoff uncertainty. We find that, on average, responders have negative regard for proposers' earnings in all countries. Proposers have negative regard for responders' monetary earnings in countries where responders have high negative regard for proposers' earnings (USA and Slovenia). In countries where responders have low negative regard for proposers' earnings (Israel and Japan), proposers are expected payoff maximizers. Journal of Economic Literature Classification Numbers: A13, C19, C44, C72, C92, D63, D64.

Cultural Differences In Ultimatum Game Experiments: Evidence From A Meta-Analysis

This paper reports the results of a meta-analysis of 32 papers with results from ultimatum game experiments. We find that on average the proposer offers 40% of the pie to the responder. This share is independent of the size of the pie and of the use of the strategy method. On average 16% of the offers is rejected. This rejection rate is lower for larger pie sizes and tends to decrease with the share offered. Responders are less willing to accept low offers when the strategy method is employed. As the studies come from different countries, meta-analysis provides an alternative way to investigate whether bargaining behavior in ultimatum games differs across countries. We find differences in proposer and in responder behavior across (groups of) countries. These differences tend to follow geographical lines rather than the cultural classifications provided by Hofstede (1991), and by Huntington (1996) and Inglehart (2000) respectively.

Bargaining Styles and Negotiation: The Thomas-Kilmann Conflict Mode Instrument in Negotiation Training

Many negotiation courses and executive training programs cover the subject of bargaining styles. The Thomas-Kilmann Conflict Mode Instrument (TKI) is a commonly used psychological assessment tool that helps students and teachers probe this topic. The TKI measures the five conflict management facets proposed by the Dual Concerns Model: competing, collaborating, compromising, accommodating, and avoiding. The author has used the TKI extensively in teaching executives about bargaining styles, and discusses the strengths and weaknesses of it as a teaching aid. He also presents research on the frequency with which various TKI scores are reported in business programs. Finally, he provides thumbnail sketches of typical bargaining behavior exhibited by people with very strong and very weak predispositions for each of the five conflict modes. Some implications of these behaviors for specific professional audiences are explored.

Japanese bargaining behavior and U.S.‐Japan relationship: FSX co‐development project

The whole process, from the initial conception of the FSX project for independent development by Japan to the conclusion of the contract for co‐development, is a rich source for political and theoretical implications on the relationship between Japan and the United States. First, the U.S. and Japan each had different conceptions about their roles in the security treaty, most notably, in the area of burden sharing. Second, the U.S. domestic debate illustrates the changing concept of security and various perceptions of its relative decline. Third, this case provides a single test bed for multiple theories of two‐level games, bureaucratic politics model and rational choice approach. Lastly, the FSX project also provides a fertile case in testing two theoretical perspectives of the realist and the institutionalist to explain international cooperation.