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Initiating Bargaining

DAVID GOLDREICH and ŁUKASZ POMORSKI
The Review of Economic Studies
Vol. 78, No. 4 (October 2011), pp. 1299-1328
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/41407062
Page Count: 30
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Initiating Bargaining
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Abstract

While there is an extensive literature on how economic agents bargain to divide an asset, little is known about the decision to initiate bargaining and how the initiation affects the outcome of bargaining. We address these questions in the context of high-stakes poker tournaments in which the last few players often negotiate the division of the remaining prize money rather than risk playing the tournament to the end. In 63% of the tournaments in our sample players enter into negotiations, and in 31%, they successfully reach an agreement. We find that the identity of the player who initiates bargaining affects whether a deal is completed but does not affect the terms of the eventual deal. The initiator tends to have a weaker than average position at the table, but the likelihood that a deal will be completed increases in the initiator's strength in the game and history of winning past tournaments. These findings indicate that initiating negotiations conveys information that is relevant to whether a deal will emerge. Nevertheless, initiating bargaining does not affect the initiator's pay-off in a completed deal. Lastly, we find strong evidence that bargaining tends to be initiated and is more likely to be successful when participants' stakes are about equal, consistent with the theoretical work of Cramton, Gibbons and Klemperer (1987, "Dissolving a Partnership Efficiently", Econometrica, 55, 615-632).

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