Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
970567 | The Journal of Socio-Economics | 2006 | 14 Pages |
Abstract
This article examines the incentive effects of final-offer arbitration (FOA) when disputants have optimistic (i.e., biased) beliefs about the arbitrator's settlement preferences. Optimism is shown to increase the divergence in Nash equilibrium final offers, and the divergence is largest under naïve, rather than sophisticated, optimism. Therefore, though FOA rules were instituted to lessen the “chilling” effect of arbitration, FOA interacts with optimism to worsen the chilling effect. Data from controlled laboratory experiments confirm that optimism leads to more divergent final bargaining positions and higher dispute rates. These results highlight the role that de-biasing expectations can play in improving bargaining outcomes.
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Economics and Econometrics
Authors
David L. Dickinson,