Bargaining, Reference Points, and Limited Influence
Assoc. Prof. Emin Karagözoğlu, Department of Economics, Bilkent University
March 6, Friday, 1:40 p.m.
We study the emergence of reference points in a bilateral, infinite horizon, alternating offers bargaining game. Players’ preferences exhibit reference-dependence, and their current offers have the potential to influence each other’s future reference points. However, this influence is limited in that it expires in a finite number of periods. We first construct a subgame perfect equilibrium that involves an immediate agreement, and study its properties. Later, we also show the existence of an equilibrium where agreement is reached with delay. We show that expiration lengths and initial reference points play a crucial role for the existence of this equilibrium. More precisely, we show that equilibrium with a delayed agreement does not exist under unlimited influence or when the initial reference point is (0, 0). Finally, we provide comparative static analyses on loss-aversion and gain-seekingness parameters, compare two variations of our model, and compare our findings with those of the closest paper to ours, Driesen, Peters, and Perea (2012).
Dr. Karagözoğlu received his PhD degree from Maastricht University in 2010 with his thesis on bargaining and claim problems. Broadly speaking, his fields of expertise are game theory, experimental economics, and behavioral economics. He joined Bilkent University, Department of Economics in 2010. He taught courses on microeconomic theory, game theory, and bargaining theory and experiments in various universities. In his current research, Dr. Karagözoğlu investigates fairness judgments, focal/reference points, time pressure, joint production, roles of effort vs luck, complementarity of inputs, transaction costs, and arbitration in bargaining games/problems. His articles appeared in journals such as Management Science, Games and Economic Behavior, Experimental Economics, Journal of Economic Behavior and Organization, Annals of Operations Research, Mathematical Methods of Operations Research, Group Decision and Negotiation, Mathematical Social Sciences, Operations Research Letters, and Theory and Decision. Dr. Karagözoğlu has visited and conducted research at institutions such as Harvard University, MIT, Boston University, LMU Munich, University of Nottingham, University of Innsbruck, Maastricht University, Ruhr University of Bochum, and University of East Anglia. He is a CESifo-Munich research affiliate, recipient of The Science Academy’s Distinguished Young Scientist Award (2015) and Bilkent University’s Distinguished Teaching Award (2015). Dr. Karagözoğlu’s hobbies include reading about paradoxes in epistemology and probability theory, cognitive/neuro psychology, and literature; cooking, watching movies, auto motorsports, and football.