Bargaining without a Common Prior—An Immediate Agreement Theorem
Econometrica · 2003 · Volume 71 · Issue 3
Abstract
In sequential bargaining models without outside options, each player's bargaining power is ultimately determined by which player will make an offer and when. This paper analyzes a sequential bargaining model in which players may hold different beliefs about which player will make an offer and when. Excessive optimism about making offers in the future can cause delays in agreement. The main result states that, despite this, if players will remain sufficiently optimistic for a sufficiently long future, then in equilibrium they will agree immediately. This result is also extended to other canonical models of optimism.
Keywords
Bargaining, misperception, optimism, delay, common-prior assumption
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