How sensitive are bargaining outcomes to changes in disagreement payoffs?

We use a human–subjects experiment to investigate how bargaining outcomes are affected by changes in the bargainers’ disagreement payoffs. Subjects play one of two bargaining games – a standard simultaneous–move Nash demand game, or a related unstructured bargaining game – against changing opponents. In both games, the disagreement outcome is asymmetric, and varies over plays of the game. Both bargaining parties are informed of both disagreement payoffs (and the cake size) prior to bargaining. We find that bargaining outcomes do vary with the disagreement outcome, but subjects underreact both to changes in their own disagreement payoff and to changes in the opponent’s disagreement payoff, relative to the risk–neutral prediction. This effect is observed in both games, and for two different cake sizes. We show theoretically that standard models of expected utility maximisation are unable to account for this effect – even when risk aversion is introduced – but a model of other–regarding preferences can explain it. See full paper See full paper