How responsive are people to changes in their bargaining position? Earned bargaining power and the 50–50 norm

A recurring puzzle in bargaining experiments is that individuals under–respond to changes in their bargaining position, compared to the predictions of standard bargaining theories. Nearly all of these results have come from settings with bargaining power allocated exogenously, so that individuals may perceive it as having been “unearned” and thus be reluctant to exploit it. Also, equal splits have typically been equilibrium outcomes, leading to a powerful tendency toward 50–50 splits. We conduct a bargaining experiment in which subjects earn their bargaining power through a real–effort task. Treatments are based on the Nash demand game (NDG) and a related unstructured bargaining game (UBG). Subjects bargain over a fixed “cake” (amount of money), with disagreement payoffs determined entirely by the number of units of the real–effort task successfully completed. About one–fourth of the time, one player earns a disagreement payoff above half the cake size; in these cases, 50–50 splits are not individually rational, and thus not equilibriumoutcomes. We find that subjects are least responsive to changes in own and opponent disagreement payoffs in the NDG with both disagreement payments below half the cake size. Responsiveness is higher in the UBG, and in the NDG when one disagreement payment is more than half the cake, but in both cases it is still less than predicted. It is only in the UBG when a disagreement payment is more than half the cake that responsiveness to disagreement payoffs reaches the predicted level. Our results imply that even when real–life bargaining position is determined by past behaviour rather than luck, the extent to which actual bargaining corresponds to theoretical predictions will depend on (1) the institutions within which bargaining takes place, and (2) the distribution of bargaining power; in particular, whether the 50–50 norm yields a viable outcome. See above See above