Aspiration Balancing Agreements: A New Axiomatic Approach to Bounded Rationality in Negotiations

Abstract

A wealth of experimental findings on how real actors do in fact bargain exists. However, as long as there is no systematic general account of the several experiments bargaining theory remains dominated by axiomatic approaches based on normative requirements or on assumptions of full rather than bounded rationality. Contrary to that, the new axiomatic account of aspiration level balancing in negotiations of boundedly rational actors presented in this paper incorporates experimental findings systematically into economic bargaining theory. It thereby forms a descriptive theory of bargaining that has normative power as well. IntroductionRecent bargaining experiments as conducted by experimental economists generally adopt a very austere design. Due to thorough efforts of controlling the situation more often than not there is not much of the flavor of real world negotiations retained. Yet there is an older literature in which the experimental interaction situation is set up in ways more akin to real life. Clearly such a richer design has its disadvantages, too. It reduces the experimental control of variables and makes generalizations often harder to achieve. However, since richer experiments are often much closer to the real world they have very distinct advantages in characterizing real behavior whenever one succeeds in distilling general structures from them. This suggests to go back to the older richer experiments and to re-analyze them for general structures.There is a nowadays largely neglected German tradition of conducting "realistic" bargaining experiments. In particular people working with the founders of German experimental economics Heinz Sauermann and Reinhard Selten 1 have experimented on bilateral negotiations in a bounded rationality framework. They have described and to some extent analyzed their experiments and they indeed came up with some fairly general insights. For instance the analysis of * I am indebted to Wulf Gaertner who some twenty years ago offered me the opportunity to start research that brings together experimental economics, bargaining theory and bounded rationality modeling as separate but systematically related topics. His good counsel and support are gratefully acknowledged. Bartos and Tietz (1983) and Tietz and Werner (1982) leads to a basic structure of aspiration levels of a negotiating person j that may be summed up in the following way: P j is the planned goal, AT j is the agreement seen as attainable, AC j is the lowest acceptable agreement, T j is the planned threat to break off negotiation L j is the planned break off of negotiation.The experiments indicate that the preceding five levels should be expected to play a role in practically all real world bargaining processes and the mental processes of a typical bargainer j. The levels are ranked with respect to the preferences of person j such that P j is the highest level and L j is the lowest one. 2If we consider a bargaining problem in monetary space, the intervals between two adjacent aspiration levels of a pe...

Negotiating Weights for Burden Sharing Rules Among Heterogeneous Parties: Empirical Evidence from a Survey Among Delegates in International Climate Negotiations

“…Recent developments in aspiration based bargaining modelling (Ahlert andLajtos 2011, Ahlert, 2007) apply fundamental concepts from aspiration level theory (Selten 1998) to study the bargaining process in (international) negotiations. Empirical applications include a study on the WTO Agricultural Negotiations of the Doha Round (Lajtos 2010).…”

“…The main idea of this concept is to model negotiations as adaptation processes being characterized by a successive exchange of reciprocal concessions (Ahlert and Lajtos 2011: p.6). The different proposals crucially depend on certain aspiration levels such as the planned goal, the lowest acceptable agreement and the planned (threat to) break off negotiations (Ahlert 2007).…”

Refining Raiffa – Aspiration Adaptation within the Zone of Possible Ag

“…The smallest index of aspiration ranges containing mutual alternatives is 3. The result is proven in a general setting (Ahlert, ) showing that any bargaining process satisfying the respective assumptions and the axiomatic requirements will stop at a particular agreement in area A . In addition, inversely, for any solution point in A , a concession process exists that satisfies assumptions and axioms and stops at that particular point.…”

“…An outcome is considered to be fair, if it secures nearly equal aspirations (Tietz, ). To explain the proceeding of the concession process in detail, the axiomatic model introduced by Ahlert () will be verbally outlined in the following . The axioms exactly formulate and structure the main experimental observations regarding the concession process.…”

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“…Likewise, its relatively high computational complexity can raise issues of scalability. Bounded rationality may hinder our ability to generalize from the results of simulations (Ahlert 2003). Finally, the choice of a cognitively realistic agent model may itself rest on particular ontological conceptions of the target phenomenon, and thus the CLARION model may not be appropriate for all simulations.…”