Bargaining with Optimism
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hetero-B.pdf
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327.36 KB
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Adobe PDF
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Author(s)
Yildiz, Muhamet
Date Issued
May 2011
Journal
Annual Review of Economics
Publisher
Annual Reviews
Citation
Yildiz, Muhamet. “Bargaining with Optimism.” Annual Review of Economics 3.1 (2011): 451–478. Web.
Version
Author's final manuscript
Abstract
Excessive optimism is a prominent explanation for bargaining delays. Recent results demonstrate that optimism plays a subtle role in bargaining, and its careful analysis may shed valuable insights into negotiation behavior. This article reviews some of these results, focusing on the following findings. First, when there is a nearby deadline, optimistic players delay the agreement to the last period before the deadline, replicating a broad empirical regularity known as the deadline effect. Second, there cannot be a substantial delay under persistent optimism; i.e., excessive optimism alone cannot explain delays. Third, when optimistic players are expected to learn during the negotiation, they delay the agreement in order to persuade their opponents. The delays in these results can be quite costly, Pareto inefficient, and common knowledge at the beginning of the game.
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike 3.0
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1146/annurev-economics-061109-080334
