Understanding Focal Points in Bargaining Situations: An Experimental Investigation
Lead Research Organisation:
University of East Anglia
Department Name: Economics
Abstract
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Organisations
Publications
Isoni A
(2013)
Focal points in tacit bargaining problems: Experimental evidence
in European Economic Review
Isoni A
(2014)
Efficiency, Equality, and Labeling: An Experimental Investigation of Focal Points in Explicit Bargaining
in American Economic Review
| Description | Many important economic and social situations involve bargaining between two or more parties, such as negotiations between a buyer and a seller, and between Israel and Palestine. An important question is which, if any, agreement will be reached, and who gets how much of the surplus. In this project we consider to what extent the reached agreements are efficient (surplus maximizing), equitable (equating the gains of the bargainers), and the extent to which purely contextual aspects (such as past agreements) influence which agreement is reached. We found from our experiments that whenever it is possible to satisfy both efficiency and equity, then such agreements are strongly focal. On the other hand, when there is a conflict between equality and efficiency, bargainers tend to settle on an efficient outcome -- they sacrifice some equality for the sake of efficiency. Futhermore, when there is a conflict about which efficient but unequal agreement to agree on, bargainers are able and willing to let contextual aspects influence who gets the lion's share. All in all, the results suggest that when people face a bargaining situation, there is a hierachy of focal selection principles: Efficiency, followed by equity, followed by contextual principles used as a symmetry breaker. |
| Exploitation Route | Setting up bargaining rules (the bargaining protocol), and controlling information available to bargainers, so as to influence which agreement is reached. Understanding the agreements negotiators tend to reach in a given bargaining situation. |
| Sectors | Communities and Social Services/Policy,Government, Democracy and Justice,Security and Diplomacy |