The Attraction and Compromise Effects in Bargaining : Experimental Evidence

We experimentally investigate, in an unstructured bargaining environment with commonlyknown money payoffs, the Attraction Effect and Compromise Effect (AE and CE) in bargaining,namely a tendency for bargainers to agree to an intermediate option (CE), or to an optionthat dominates another option (AE). We conjecture that the relevance of the AE and CE inbargaining is constrained by how focal the feasible agreements’ payoffs are. We indeed observethat there are significant AEs and CEs, but these effects are mediated by the efficiency andequality properties of the feasible agreements. Due to the allure of equality, the effects areharder to observe when an equal earnings contract is available. Decoys are more effective inshifting agreements from a very unequal contract to a less unequal one rather than the reverse