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Cognition and framing in sequential bargaining for gains and losses

Camerer, Colin F. and Johnson, Eric J. and Rymon, Talia and Sen, Sankar (1993) Cognition and framing in sequential bargaining for gains and losses. In: Frontiers of game theory. MIT Press , Cambridge, MA, pp. 27-47. ISBN 0-262-02356-3 http://resolver.caltech.edu/CaltechAUTHORS:20110217-073631532

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Abstract

Noncooperative game-theoretic models of sequential bargaining give an underpinning to cooperative solution concepts derived from axioms, and have proved useful in applications (see Osborne and Rubinstein 1990). But experimental studies of sequential bargaining with discounting have generally found systematic deviations between the offers people make and perfect equilibrium offers derived from backward induction (e.g., Ochs and Roth 1989). We have extended this experimental literature in two ways. First, we used a novel software system to record the information subjects looked at while they bargained. Measuring patterns of information search helped us draw inferences about how people think, testing as directly as possible whether people use backward induction to compute offers. Second, we compared bargaining over gains that shrink over time (because of discounting) to equivalent bargaining over losses that expand over time. In the games we studied, two players bargain by making a finite number of alternating offers. A unique subgame-perfect equilibrium can be computed by backward induction. The induction begins in the last period and works forward. Our experiments use a three-round game with a pie of $5.00 and a 50-percent discount factor (so the pie shrinks to $2.50 and $1.25 in the second and third rounds). In the perfect equilibrium the first player offers the second player $1.25 and keeps $3.75.


Item Type:Book Section
Additional Information:© 1993 MIT Press. The financial support of the National Science Foundation to the authors Camerer and Johnson (grants NSF 88-09299 and NSF 90-23531) is gratefully acknowledged. Helpful comments were received from audiences at Harvard, Penn, Cornell, MIT, NYU, Penn State, the Bonn Mathematical Economics Workshop (BoWo IV), and the International Conference on Game Theory (Florence, June 1991).
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Funding AgencyGrant Number
NSF88-09299
NSF90-23531
Record Number:CaltechAUTHORS:20110217-073631532
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20110217-073631532
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:22331
Collection:CaltechAUTHORS
Deposited By: Tony Diaz
Deposited On:09 Mar 2011 18:23
Last Modified:26 Dec 2012 12:56

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