Bargaining in a video experiment. Determinants of boundedly rational behavior (Q1280390)

Bilateral bargaining situations are of great importance in reality. Bargaining is a frequent type of social interaction in real world settings. There are two methods to get a theoretical answer to the bargaining problem. The first one is the axiomatic approach defining the outcome of bargaining by a list of desirable properties the solution should satisfy. This approach is proposed by Nash in 1950 and is known as Nash bargaining solution. The second method, called the strategic approach, takes into account the bargaining process. Both methods have their advantages and disadvantages. The generality of the axiomatic approach and the difficulty to assess the reasonable axioms are its major disadvantage. The main disadvantage of the strategic method is that the moves in the bargaining game have to be specified completely and in detail. In this study an experiment is analyzed which is designed to observe experimental subjects in decision situations. In the experiment a two-person characteristic function game was played. Each of the players comprises a group of three (in some cases two) persons. The groups receive a guaranteed payoff if they do not form a coalition but break off the negotiation. The two groups negotiate on the allocation of the coalition value by alternately making offers to the opponent group. The negotiation stops if one of the groups accepts the proposal of the other group or if one of the groups breaks off negotiation. At the end of this discussion they have to take a joint decision. The following decisions can be taken if a group is in decision mode: 1. Making a proposal on the allocation of the coalition value. 2. Shift the initiative to the other group without making a proposal. 3. Accepting the last proposal of the other group. 4. Breaking off negotiation. No rules were given how the decision was to be taken within the groups. The design of the experiment was motivated by the fact that subjects do not behave according to the assumptions of neoclassical microeconomics. Traditional microeconomics make cognitive and motivational assumptions of subjects' full rationality that are revealed as being unrealistic. Subjects do not behave according to full rationality. They do not make decisions according to Bayesian decision principles and the game theory notion of Nash equilibrium. This research provided clear evidence that subjects do behave according to rules that are not guided by full rationality. The aim of this exploratory study is to look for behavioral regularities and to investigate subjects' reasoning and motivations. Subjects are observed during experiments by recording their remarks during their decision process. The methodology of videotaping does provide a unique opportunity to observe the spontaneous behavior of subjects during their decision processes. After having learned about the typical determinants of agents' behavior in the experiment it was found that the typical behaviour is not irrational but is based on reasonable systematic principles. These principles are well-known in economics, but mainly in psychological literature. The author describes the determinants of boundedly rational behaviour which are found to be prevalent in the experiment. The book presents a detailed analysis of each of the principles such as aspiration levels, prominence, the equity principle and fairness, motivations, emotions, and social norms. This book may be useful for graduate students in economic theory and other social sciences as well as for scholars interested in bargaining problems.