2022 Fiscal Year Annual Research Report
The experimental economics of decentralization
| Project/Area Number |
20K01553
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| Research Institution | Waseda University |
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Principal Investigator |
Veszteg Robert 早稲田大学, 政治経済学術院, 教授 (30597753)
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| Project Period (FY) |
2020-04-01 – 2023-03-31
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| Keywords | bargaining / cooperative bargaining / Nash bargaining solution / axioms / scale invariance |
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| Outline of Annual Research Achievements |
We have carried out a number of experiments on human decision-making investigating bargaining in an unstructured two-person setting. In sharp contrast to the large body of experimental research on similar problems, we have used a context-rich design and relied on cooperative bargaining theory for reference. We have collected data in Tokyo and in Paris. Surprisingly, our main results are identical across the two locations.
We have tested seven axioms that are frequently used in cooperative bargaining theory. Our data support strong efficiency, symmetry, independence of irrelevant alternatives and monotonicity, and reject scale invariance. Also individual rationality and midpoint domination are violated by a significant fraction of agreements. In consequence, popular theoretical solutions that satisfy the rejected axioms, as the Nash or Kalai-Smorodinsky bargaining solutions, perform poorly in the laboratory. The solution that best explains the data is the deal-me-out solution.
We have also checked whether bargaining is guided by utilities as assumed by the classic version of cooperative bargaining theory or rather by comparisons in observables as often assumed in empirical work and by behavioral models. Our data show that scale invariance is supported when the relevant information is only privately known and when rescaling only affects the extreme points of the utility scale. Scale invariance is not supported when rescaling affects the units on the utility scale. Overall, we find scarce empirical support to classic theoretical bargaining solutions based on unobservables.
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