This paper develops a model of bargaining over decision rights between an uninformed principal and an informed but self-interested agent. We introduce two different bargaining mechanisms: tacit and explicit bargaining. In tacit bargaining, an uninformed principal makes a take-it-or-leave-it...

Recent field evidence suggests a positive link between overconfidence and innovative activities. In this paper we argue that the connection between overconfidence and innovation is more complex than the previous literature suggests. In particular, we show theoretically and experimentally that...

This paper studies a cheap talk model in which two senders having partial and non-overlapping private information simultaneously communicate with an uninformed receiver. The sensitivity of the receiverʼs ideal action to one senderʼs private information depends on the other senderʼs private...

This article characterizes the conditions under which holdout (i.e. bargaining inefficiency) may, or may not be significant in a two-sided, one-buyer-many-seller model with complementarity. Our central result is that the severity of holdout (i.e. inefficiency) is critically dependent on three...

We examine simultaneous versus sequential choice of effort in a two-player contest. The timing of moves, determined in a preplay stage prior to the contest subgame, as well as the value of the prize is allowed to be endogenous. Contrary to endogenous timing models with an exogenously fixed prize...

From the regulation of sports to lawmaking in parliament, in many situations one group of people (“agents”) make decisions that affect the payoffs of others (“principals”) who may offer action-contingent transfers in order to sway the agents' decisions. Prat and Rustichini (2003)...

Expert advice is often biased in ways that benefit the advisor. We demonstrate how self-deception helps advisors be biased while preserving their self-image as ethical and identify limits to advisors' ability to self-deceive. In experiments where advisors recommend one of two investments to a...

We introduce a framework for modeling pairwise interactive beliefs and provide an epistemic foundation for Nash equilibrium in terms of pairwise epistemic conditions locally imposed on only some pairs of players. Our main result considerably weakens not only the standard sufficient conditions by...

We study observational learning in environments with congestion costs: an agent's payoff from choosing an action decreases as more predecessors choose that action. Herds cannot occur if congestion on every action can get so large that an agent prefers a different action regardless of his beliefs...

Reputations often guide sequential decisions to trust and to reward trust. We consider situations where each player is randomly matched with a partner in every period. One player – the truster – decides whether to trust. If trusted, the other player – the temptee – has a temptation to...