Contributions

  • Massachusetts Institute of Technology. Dept. of Economics - Contributor

Publication

2002 - Massachusetts Institute of Technology, Dept. of Economics, Cambridge, MA, Massachusetts

Language

English

Word Count

4,000 words, Guess

Page Count

16 pages

Identifiers

Description

I analyze a sequential bargaining model in which players are optimistic about their bargaining power (measured as the probability of making offers), but learn as they play the game. I show that there exists a uniquely predetermined settlement date, such that in equilibrium the players always reach an agreement at that date, but never reach one before it. Given any discount rate, if the learning is sufficiently slow, the players agree immediately. I show that, for any speed of learning, the agreement is delayed arbitrarily long, provided that the players are sufficiently patient. Therefore, although excessive optimism alone cannot cause delay, it can cause long delays if the players are expected to learn. Keywords: Bargaining, Misperception, Optimism, Delay, Learning. JEL Classification: C72, C78, D74, D83.

Subjects

Series Statement

  • Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 02-38
  • Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 02-38.

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