Endogenous reference points in bargaining

Abstract

We allow the reference point in (cooperative) bargaining problems with a reference point to be endogenously determined. Two loss averse agents simultaneously and strategically choose their reference points, taking into consideration that with a certain probability they will not be able to reach an agreement and will receive their disagreement point outcomes, whereas with the remaining probability an arbitrator will distribute the resource by using (an extended) Gupta-Livne bargaining solution (Gupta and Livne in Manag Sci 34:1303-1314, 1988). The model delivers intuitive equilibrium comparative statics on the breakdown probability, the loss aversion coefficients, and the disagreement point outcomes.

Reference points in sequential bargaining: theory and experiment

“…Several experimental papers find that reference points affect the final distribution of the surplus under different bargaining protocols, for example, the papers of: Karagözoğlu and Keskin (2018a) for cooperative bargaining where bargainers choose their reference points; Sloof et al (2004), Ellingsen and Johannesson (2001, 2004), and Sonnemanns et al (2001) for one‐shot hold‐up problems, and Christiansen and Kagel (2019) for legislative bargaining. Experimental evidence on the impact of reference points in alternating‐offer bargaining, however, is scant.…”

Prospect Theory, Fairness, and the Escalation of Conflict at a Negotiation Impasse*

“…In addition to social comparison, high loss references can be driven, for instance, by high aspirations set at the negotiation table(Korobkin, 2002;Karagözoglu and Keskin, 2018). See alsoCox et al (2007) andBolton and Ockenfels (2000) for models of non-linearities in inequity aversion Eisenkopf and Teyssier (2013).…”

“… In addition to social comparison, high loss references can be driven, for instance, by high aspirations set at the negotiation table (Korobkin, 2002; Karagözoglu and Keskin, 2018). See also Cox et al .…”

Bargaining, Reference Points, and Limited Influence

“…The reader is referred to Benartzi and Thaler[6], Shalev[44,45], Compte and Jehiel[10], Falk and Knell[15], Köszegi and Rabin[34][35][36], Gimpel[20], Li[38], Vartiainen[47], Abeler et al[1], Baucells et al[5], Giorgi and Post[21], Hyndman[26], Driesen et al[12], Sarver[43], Roels and Su[41], Karagözoglu and Keskin[31] and Karagözoglu et al[30] among others.…”