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CREED-CEDEX-UEA Meeting 6 June 2008. Cheap Talk and Bargaining Power. Adrian de Groot Ruiz Sander Onderstal Theo Offerman. Outline. Sharing information in bargaining Relevant Situations Questions Model Equilibria Design Results Literature. Introduction.

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cheap talk and bargaining power

CREED-CEDEX-UEA Meeting 6 June 2008

Cheap Talk and Bargaining Power

Adrian de Groot Ruiz

Sander Onderstal

Theo Offerman

outline
Outline
  • Sharing information in bargaining
  • Relevant Situations
  • Questions
  • Model
  • Equilibria
  • Design
  • Results
  • Literature
consider the following situations

Introduction

Consider the Following Situations:
  • Potential Merger
    • Merging firms send proposal to Market Authority
    • Merging firms prefer as large a firm as possible
    • Exact preference of Authority are unknown
    • Outside option is no merger
  • Legal dispute
    • Father and Mother fight over Custody
    • Mother wants the children all day
    • Father’s preferences are unknown
    • Lawyers try to find an agreement
    • Outside option is costly trial
sharing information in bargaining

Introduction

Sharing information in Bargaining
  • Incentive to share: efficiency
    • “common goals”
    • Efficiency
  • Incentive not to share: strategic
    • Vagueness
    • Deception
  • How much information can be transmitted?
    • Crawford/Sobel, Matthews, Dickhaut, Cai/Wang
questions

Introduction

Questions
  • If you become more powerful, your incentives and credibility may change.
  • What is the effect of a neologism on the evolution of bargaining-language?
    • Farrell
model chooser and proposer

Model

Model: Chooser and Proposer
  • Bargain over policy p in [0, 120]
  • Ideal policy Proposer is 0
  • Ideal policy Chooser is private v ~ U[0,120]
  • Status quo δ (not in [0, 120]): ui(δ)=0

60

60

uP = 60 – 0.4*p

uC = 60 – |p – v|

0

0

v

120

120

game tree

Model

Game Tree
  • Nature informs Chooser of value in [0,120]
  • Chooser sends suggestion s in [0,120]
  • Proposer makes proposal x in [0, 120]
  • Chooser accepts or rejects proposal x
slide9

Theory

Chooser stronger => More Information Transmission

60

30

120

0

30

90

experimental procedure

Experiment

Experimental Procedure
  • Random matching, fixed roles
  • 50 periods per session
  • 10 subjects per matching group
  • Six matching groups per treatment
  • Social History
results values

Experiment

Results: Values

Suggestions

Proposals

Acceptance rates

v

v

v

None: uP(δ)=0 uC(δ)=0Chooser: uP(δ)=0 uC(δ)=30Both: uP(δ)=30 uC(δ)=30

results variance

Experiment

Results: Variance

Var(Suggestions|v)

Var(Proposals|v)

Var(Acceptance|v)

v

v

v

None: uP(δ)=0 uC(δ)=0Chooser: uP(δ)=0 uC(δ)=30Both: uP(δ)=30 uC(δ)=30

preliminary conclusions
Preliminary Conclusions
  • Experiments show mix between equilibrium behavior and naive behavior.
  • Chooser stronger implies more information transmission.
  • Proposer stronger implies less information transmission and more instability.
  • Neologisms cause instability.
literature

Literature

Literature
  • Crawford & Sobel (Econometrica, 1982)
  • Matthews (QJE, 1989)
  • Farrell (Games, 1993)
  • Dickhout (JET, 1995)
  • Cai/Wang (Games, 2006)
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