Escalation Bargaining : Theoretical Analysis and Experimental Test

The standard chicken game is a popular model of certain important real scenarios but does not allow for the escalation behavior these are typically associated with. This is problematic if the critical, final decisions in these scenarios are sensitive to previous escalation. We introduce and analyze, theoretically and by experiment, a new game which permits escalation behavior. Compared with an equivalent chicken game, Pareto-suboptimal outcomes are significantly more frequent. This result is inconsistent with our rational choice analysis and possible psychological roots are explored