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Reference Dependent Prices In Bargaining: An Experimental Examination Of Precise First Offers, Erik O. Kimbrough, David Porter, Mark Schneider

ESI Working Papers

Evidence from psychology and marketing suggests that those who make a "precise" first offer in bargaining get a better deal than those who make a "round" first offer. We report on a series of experiments designed to test for and improve our understanding of the "precise first offer" (PFO) effect in bargaining and whether it likely reflects rational optimizing or equilibrium behavior. Our experimental treatments vary whether decisions are incentivized and whether the PFO effect can emerge as an equilibrium of a cheap-talk signaling game. We find evidence of a PFO effect when subjects read a vignette and make unincentivized …