Game Structure and Bargaining Power in Sequential Mini-Games

An Experiment

Abstract

Various explanations for the behavior observed in sequential bargaining games have been offered in an attempt to explain recent empirical evidence. This paper proposes an explanation for behavior in two-player games that is based on an experiential assessment of the relative bargaining power of opponents by the players involved and does not require payoff maximization. It is called the stick-and-carrot heuristics. Experimental verification was conducted: first, four "classical" bargaining games were transformed into two-action sequential mini-games was compatible with the existing literature on the "classical" games in continuous action space; and finally, it was discovered that the stick-and carrot heuristics provided accurate predictions of behavior in some specially designed similar bargaining games. It also assisted in answering some questions posed by recent experimental results from a larger set of bargaining games. This research has shown that bargaining power is an important clue to the understanding of observed behavior and, furthermore, that the careful assessment of a game's structure is an essential element when formulating predictions concerning a player's likely behavior.