Kohler, Stefan (2012): Envy can promote more equal division in alternating-offer bargaining. Published in: Journal of Neuroscience, Psychology, and Economics , Vol. 1, No. 6 (2013): pp. 31-41.
Download (201kB) | Preview
Bargainers in an open-ended alternating-offer bargaining situation may perceive envy, a utility loss caused by receiving the smaller share that is modeled in some social preferences in addition to self-interest. I extend Rubinstein (1982)'s original solution of the bargaining problem for two self-interested bargainers to this strategic situation. Bargainers still reach agreement in the first period and their bargaining shares increase in the strength of their own envy. As both bargainers' envy diminishes, the agreed partition converges to the Rubinstein division. If equally patient bargaining parties exhibit similar envy, then the agreed partition is tilted away from the Rubinstein division towards the equal division. Notably, the potential sensation of envy also boosts the share of the eventually envy-free party who leaves the bargaining with the larger share under the agreed partition. This gain in bargaining strength through envy can result in a bargaining outcome that is more unequal than predicted by the Rubinstein division.
|Item Type:||MPRA Paper|
|Original Title:||Envy can promote more equal division in alternating-offer bargaining|
|Keywords:||alternating offers; bargaining; bargaining power; behavioral economics; envy; equity; fairness; inequality aversion; negotiation; social preferences|
|Subjects:||D - Microeconomics > D0 - General > D03 - Behavioral Economics; Underlying Principles
C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C78 - Bargaining Theory; Matching Theory
D - Microeconomics > D6 - Welfare Economics > D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
|Depositing User:||Stefan Kohler|
|Date Deposited:||12. Sep 2012 12:50|
|Last Modified:||09. Jul 2013 19:32|
Binmore, K., Morgan, P., Shaked, A., & Sutton, J. (1991). Do people exploit their bargaining power? an experimental study. Games and Economic Behavior, 3, 295–322.
Binmore, K., Shared, A., & Sutton, J. (1989). An outside option experiment. Quarterly Journal of Economics, 104, 753–770.
Binmore, K., Swierzbinski, J., & Tomlinson, C. (2007). An experimental test of Rubinstein’s bargaining model.
Bolton, G. E. (1991). A comparative model of bargaining: Theory and evidence. American Economic Review, 81, 1096–1136.
Camerer, C. F. (2003). Behavioral Game Theory. Experiments in Strategic Interaction. The roundtable series in behavioral economics. Princeton: Princeton University Press.
Compte, O., & Jehiel, P. (2004). Gradualism in bargaining and contribution games. The Review of Economic Studies, 71, 975–1000.
Cooper, D. J., & Kagel, J. H. (n.d.). Other regarding preferences: A selective survey of experimental results. In J. H. Kagel, & A. E. Roth (Eds.), Handbook of Experimental Economics, Volume 2. Princeton: Princeton University Press.
De Bruyn, A., & Bolton, G. E. (2008). Estimating the influence of fairness on bargaining behavior. Management Science, 54, 1774–1791.
Driesen, B., Perea, A., & Peters, H. (2011). Alternating offers bargaining with loss aversion. Mathematical Social Sciences, 64, 103–118.
Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. Quarterly Journal of Economics, 114, 817–868.
Fershtman, C., & Seidmann, D. (1993). Deadline effects and inefficient delay in bargaining with endogenous commitment. Journal of Economic Theory, 60, 306–321.
Herreiner, D., & Puppe, C. (2009). Envy freeness in experimental fair division problems. Theory and Decision, 67, 65–100.
Kohler, S. (2011). Altruism and fairness in experimental decisions. Journal of Economic Behavior & Organization, 80, 101–109.
Kohler, S. (2012a). Guilt causes equal or unequal division in alternating-offer bargaining. MPRA Paper 40760, University Library of Munich, Germany.
Kohler, S. (2012b). Incomplete information about social preferences explains equal division and delay in bargaining. Games, 3, 119–137.
Kohler, S. (2012c). More fair play in an ultimatum game after resettlement in Zimbabwe: A field experiment and a structural model. MPRA Paper 40248, University Library of Munich, Germany.
Li, D. (2007). Bargaining with history-dependent preferences. Journal of Economic Theory, 136, 695–708.
Miettinen, T. (2010). History-dependent reciprocity in alternating offer bargaining. Finnish Economic Papers, 23, 1–15.
Montero, M. (2007). Inequity aversion may increase inequity. Economic Journal, 117, C192–C204.
Montero, M. (2008). Altruism, spite and competition in bargaining games. Theory and Decision, 65, 125–151.
Rapoport, A., Weg, E., & Felsenthal, D. S. (1990). Effects of fixed costs in two-person sequential bargaining. Theory and Decision, 28, 47–71.
Rubinstein, A. (1982). Perfect equilibrium in a bargaining model. Econometrica, 50, 97–109.
Shaked, A., & Sutton, J. (1984). Involuntary unemployment as a perfect equilibrium in a bargaining model. Econometrica, 52, 1351–1364.
Smith, R. (Ed.) (2008). Envy: Theory and Research. New York: Oxford University Press.
Ståhl, I. (1972). Bargaining Theory. Stockholm School of Economics.
Takahashi, H., Kato, M., Matsuura, M., Mobbs, D., Suhara, T., & Okubo, Y. (2009). When your gain is my pain and your pain is my gain: Neural correlates of envy and Schadenfreude. Science, 323, 937–939.
Von Neumann, J., & Morgenstern, O. (1944). Theory of Games and Economic Behavior. Princeton, New Jersey, USA: Princeton University Press.
Weg, E., Rapoport, A., & Felsenthal, D. S. (1990). Two-person bargaining behavior in fixed discounting factors games with infinite horizon. Games and Economic Behavior, 2, 76–95.
Weg, E., & Zwick, R. (1999). Infinite horizon bargaining games: Theory and experiments. In D. V. Budescu, I. Erev, & R. Zwick (Eds.), Games and Human Behavior: Essays in Honor of Amnon Rapoport. New Jersey: Lawrence Erlbaum Associates.
Zwick, R., Rapoport, A., & Howard, J. C. (1992). Two-person sequential bargaining behavior with exogenous breakdown. Theory and Decision, 32, 241–268.