Confidence in bargaining processes and outcomes: Empirical tests of a conceptual model

Abstract

The relationship between negotiation processes and outcomes is a challenging problem for theoretical and empirical analyses. In this paper, we study whether a dynamic bargaining model that incorporates a notion of negotiator confidence in the process and that predicts the asymmetric Nash bargaining solution as the outcome is compatible with observations in negotiation experiments. This requires establishing how the compatibility between the model and the actual bargaining process can be assessed, without knowing a key parameter in the model. We find that the model is largely compatible with the observed bargaining process, but that actual agreements tend to be more balanced than the solution predicted by the model. We also find a close relationship between the parameter representing negotiator confidence in the model and the negotiator’s (independently ascertained) aspiration levels, thus providing additional evidence for the model’s external validity.