This experimental study investigates two bargaining games with twosided incomplete information between a seller and a buyer. In the first game with no outside options many subjects do not use the incomplete information to their advantage as predicted. We find that a model with adjusting priors...

A model is presented where workers of differing abilities and from different social backgrounds are assigned to jobs based on grades received at school. It is examined how this matching is affected if good grades are granted to some low ability students. Such grade inflation is shown to reduce...

We adopt the largest consistent set defined by Chwe [J. of Econ. Theory 63 (1994), 299-235] to predict which coalition structures are possibly stable when players are farsighted. We also introduce a refinement, the largest cautious consistent set, based on the assumption that players are...

The paper examines the formation of free trade agreements (FTAs) as a network formation game. We consider a general n-country model in which countries trade differentiated industrial commodities as well as a numeraire good. Countries may be different in the size of the industrial good industry...

Players are assumed to rank each other as coalition partners. Two processes of coalition formation are defined and illustrated: i) Fallback (FB): Players seek coalition partners by descending lower and lower in their preference rankings until some majority coalition, all of whose members...

Ordinally single-peaked preferences are distinguished from cardinally single-peaked preferences, in which all players have a similar perception of distances in some one-dimensional ordering. While ordinal single-peakedness can lead to disconnected coalitions that have a "hole" in the ordering,...

Negotiations frequently end in conflict after one party rejects a final offer. In a large-scale internet experiment, we investigate whether a 24-hour cooling-off period leads to fewer rejections in ultimatum bargaining. We conduct a standard cash treatment and a lottery treatment, where subjects...

We propose a way to model firm mergers using a matching game known as the roommate problem, whereby firms are assumed to make preference rankings of potential merger partners. The position of a firm in another firm's ranking is assumed to be governed by an index, which in turn consists of a...

This paper studies the incentive compatibility of solutions to generalized indivisible good allocation problems introduced by Sönmez (1999), which contain the well-known marriage problems (Gale and Shapley, 1962) and the housing markets (Shapley and Scarf, 1974) as special cases. In particular,...

We demonstrate a 'preemptive merger mechanism' which may explain the empirical puzzle why mergers reduce profits, and raise share prices. A merger may confer strong negative externalilties on the firms outside the merger. If being an 'insider' is better than being an 'outsider', firms may merge...