Spillovers and conflict in wage bargaining: Experimental evidence

• We analyze information spillovers in wage bargaining with the aid of an economic bargaining experiment.
• We compare rational learning and social comparisons as mechanism for spillovers.
• Social comparisons cause spillovers when learning is not possible.
• Reference point selection is subject to self-serving bias which leads to conflict.
• Conflict is strongly mitigated by the bargaining process.
• Conflict is altogether prevented when there is common knowledge that spillovers can be used to learn about private information.

We investigate how information spillovers from other negotiations affect conflict in bargaining. Two theoretical mechanisms are studied: (1) social comparisons, which are hypothesized to increase conflict due to self-serving biases, and (2) rational learning, which is hypothesized to decrease conflict by reducing information asymmetries. Our experimental design allows for an interactive bargaining process and offers full control over the information available to negotiators. Consistent with studies of one-shot games, we find that spillovers resulting from social comparisons increase conflict; however, the bargaining process mitigates this effect. In bargaining situations in which spillovers also allow for rational learning, the conflict-increasing effects of spillovers are prevented.