In most models of bargaining, costless and unverifiable lies about private information and incredible threats about future actions are considered cheap talk and do not impact outcomes. In practice, however, this type of talk is often an integral part of bargaining. This experiment examines the impact of cheap talk in an ultimatum bargaining setting with two-sided imperfect information. In contrast to previous work, the experiment provides an opportunity for deceptions to be revealed and punished. Results show that lies about private information and (incredible) threats of future actions do influence bargaining outcomes (offers and responses) in both the short- and long-term.
Bibliographical noteFunding Information:
We would like to acknowledge early contributions to the design of this experiment by members of the Junior Faculty Workshop in the Conflict Management Division at the 1995 Academy of Management meetings in Vancouver, BC. They included Michelle Buck, Rodney Lim, David Messick, and Rob Robinson. The first author gratefully acknowledges support from the NSF, grant SES 98-76079-001 and all authors thank the Dispute Resolution Research Center for financial support. We also thank David Grether, Associate Editor of JEBO for helpful comments.
- Cheap talk
- Experimental bargaining
- Ultimatum games