Two-Person Bargaining under Incomplete Information : An Experimental Study of New Mechanisms

New theoretical developments and recent experimental studies involving the sealed-bid kappa-double auction mechanism for bilateral bargaining under incomplete information have raised new questions about procedures that induce efficient bargaining behavior and about the applicability of extant adaptive learning models. It is now generally accepted that a theory of bargaining behavior for individuals who typically do not meet the stringent assumptions about common knowledge of rationality cannot be complete without systematic empirical investigations of the properties of the various mechanisms that structure bargaining. The aim of this dissertation is to critically explore the extent to which efficient bargaining outcomes can be achieved while dynamically accounting for individual behavior across repeated play of the game. In the first study, an endogenous bonus is introduced into the baseline single- stage game. Although theoretically doing so induces truth-telling behavior for both players, the experimental data provide very limited support. In the second study, the baseline game is extended by incorporating an additional, costless period of bargaining, thereby giving players an increased opportunity to reveal information about their respective reservation values. The data show that subjects quickly learn not to reveal information about their private valuation despite the increased opportunity to bilaterally improve efficiency. Finally, the third study investigates behavior sensitivity to variation in the trading parameter, kappa. Instead of following the historical precedent of setting kappa = 1/2, extreme values of kappa are invoked in an asymmetric information environment endowing a player with exclusive price-setting power.Air Force Inst of Tech Wright-Patterson AFB OH is the author of 'Two-Person Bargaining under Incomplete Information : An Experimental Study of New Mechanisms', published 2002 under ISBN 9781423509103 and ISBN 1423509102.