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      Bargaining, reference points, and limited influence

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      Author(s)
      Kara, Tarık
      Karagözoğlu, Emin
      Özcan-Tok, E.
      Date
      2020-07
      Source Title
      Dynamic Games and Applications
      Print ISSN
      2153-0785
      Publisher
      Birkhauser
      Language
      English
      Type
      Article
      Item Usage Stats
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      Abstract
      We study the emergence of reference points in a bilateral, infinite horizon, alternating offers bargaining game. Players’ preferences exhibit reference dependence, and their current offers have the potential to influence each other’s future reference points. However, this influence is limited in that it expires in a finite number of periods. We first construct a subgame perfect equilibrium that involves an immediate agreement and study its properties. Later, we also show the existence of an equilibrium where agreement is reached with delay. We show that expiration lengths and initial reference points play a crucial role for the existence of this equilibrium. For instance, we show that equilibrium with a delayed agreement does not exist when the initial reference point is (0, 0). Finally, we provide comparative static analyses on model parameters, compare two variations of our model, and compare our findings with those of the closest paper to ours, Driesen et al. (Math Soc Sci 64:103–118, 2012).
      Keywords
      Alternating offers
      Bargaining games
      Delay
      Reference-dependent preferences
      Recency effect
      Reference points
      Retrievability
      Permalink
      http://hdl.handle.net/11693/75411
      Published Version (Please cite this version)
      https://dx.doi.org/10.1007/s13235-020-00359-8
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      • Department of Economics 697
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