Abstract
We utilise results from a human-subjects experiment to examine the connection between strategic uncertainty and outcomes in games. Our basic game is a Nash demand game where one player has an outside option available. A "chat" treatment allows bargainers to send cheap-talk messages prior to playing the basic game, and in a "contracts" treatment, they can additionally propose and accept binding contracts. We propose that strategic uncertainty comprises at least two facets: "coordination-type", which is lower in the chat game than in the basic game, and "rationality-type", which is lower in the contracts game than in the chat game. We find that both types of strategic uncertainty impact bargaining outcomes: moving from the basic game to the chat game, and thence to contracts, improves several aspects of outcomes, such as higher efficiency, less opting out and less under-demanding. Other results include a treatment effect on the types of agreements that are reached.
Original language | English |
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Pages (from-to) | 554-574 |
Number of pages | 21 |
Journal | European Economic Review |
Volume | 55 |
Issue number | 4 |
Early online date | 17 Jul 2010 |
DOIs | |
Publication status | Published - May 2011 |
Keywords
- Strategic uncertainty
- Nash bargaining
- Unstructured bargaining
- Outside option
- Cheap talk
- Binding agreements
- Coase theorem