Fairness in Incomplete Information Bargaining: Theory and Widespread Evidence from the Field

63 Pages Posted: 2 Aug 2021 Last revised: 16 Jan 2022

See all articles by Daniel Keniston

Daniel Keniston

Yale University; Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); The International Growth Centre; Abdul Latif Jameel Poverty Action Lab (J-PAL)

Bradley Larsen

Stanford University - Department of Economics; National Bureau of Economic Research (NBER); eBay Research Labs

Shengwu Li

Harvard University - Society of Fellows

J.J. Prescott

University of Michigan Law School

Bernardo Silveira

Washington University in St. Louis

Chuan Yu

Stanford University - Department of Economics

Date Written: July 2021

Abstract

This paper uses detailed data on sequential offers from seven vastly different real-world bargaining settings to document a robust pattern: agents favor offers that split the difference between the two most recent offers on the table. Our settings include negotiations for used cars, insurance injury claims, a TV game show, auto rickshaw rides, housing, international trade tariffs, and online retail. We demonstrate that this pattern can arise in a perfect Bayesian equilibrium of an alternating-offer game with two-sided incomplete information, but this equilibrium is far from unique. We then provide a robust-inference argument to explain why agents may view the two most recent offers as corresponding to the potential surplus. Split-the-difference offers under this weaker, robust inference can then be viewed as fair. We present a number of other patterns in each data setting that point to split-the-difference offers as a strong social norm, whether in high-stakes or low-stakes negotiations.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Keniston, Daniel and Larsen, Bradley and Li, Shengwu and Prescott, J.J. and Silveira, Bernardo and Yu, Chuan, Fairness in Incomplete Information Bargaining: Theory and Widespread Evidence from the Field (July 2021). NBER Working Paper No. w29111, Available at SSRN: https://ssrn.com/abstract=3897547

Daniel Keniston (Contact Author)

Yale University ( email )

28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3620 (Phone)

HOME PAGE: http://keniston.commons.yale.edu

Yale University - Cowles Foundation ( email )

Box 208281
New Haven, CT 06520-8281
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

The International Growth Centre ( email )

32 Lincoln’s Inn Fields
Houghton Street
London, WC2A 2AE
United Kingdom

Abdul Latif Jameel Poverty Action Lab (J-PAL) ( email )

30 Wadsworth Street, E53-320
77 Massachusetts Avenue
Cambridge, MA 02142
United States

Bradley Larsen

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

HOME PAGE: http://www.stanford.edu/~bjlarsen/research.html

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

eBay Research Labs ( email )

2065 Hamilton Avenue
San Jose, CA
United States

Shengwu Li

Harvard University - Society of Fellows ( email )

Cambridge, MA
United States

J.J. Prescott

University of Michigan Law School ( email )

3170 South Hall
701 S. State St.
Ann Arbor, MI 48109
United States
734-763-2326 (Phone)

Bernardo Silveira

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Chuan Yu

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
73
PlumX Metrics