Self-Serving Biases in Bargaining

Kohnz, Simone (2006): Self-Serving Biases in Bargaining. Explaining Impasse. Discussion Papers in Economics 2006-9

Abstract

There is strong evidence that in bargaining situations with asymmetric outside options people exhibit self-serving biases concerning their fairness judgements. Moreover, psychological literature suggests that this can be a driving force of bargaining impasse. This paper extends the notion of inequity aversion to incorporate self-serving biases due to asymmetric outside options and analyses whether this leads to bargaining breakdown. I distinguish between sophisticated and naive agents, that is, those agents who understand their bias and those who do not. I find that breakdown in ultimatum bargaining results from naiveté of the proposers.

• Item Type: Paper (Discussion Paper)
• Keywords: fairness perceptions, self-serving bias, inequity aversion, ultimatum bargaining, outside options
• Collections: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Behavioral Economics
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: A13, C7, D63
• Language: English