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We study dynamic unstructured bargaining with deadlines and one-sided private information about the amount available to share (the 'pie size'). Using mechanism design theory, we show that given the players' incentives, the equilibrium incidence of bargaining failures ('strikes') should increase with the pie size, and we derive a condition under which strikes are efficient. In our setting, no equilibrium satisfies both equality and efficiency in all pie sizes. We derive two equilibria that resolve the trade-off between equality and efficiency by favoring either equality or efficiency. Using a novel experimental paradigm, we confirm that strike incidence is decreasing in the pie size. Subjects reach equal splits in small pie games (in which strikes are efficient), while most payoffs are close to either the efficient or the equal equilibrium prediction, when the pie is large. We employ a machine learning approach to show that bargaining process features recorded early in the game improve out-of-sample prediction of disagreements at the deadline. The process feature predictions are as accurate as predictions from pie sizes only, and adding process and pie data together improves predictions even more. History: Accepted by Uri Gneezy, behavioral economics. Open Access Statement: This work is licensed under a Creative Commons Attribution 4.0 International License. You are free to copy, distribute, transmit and adapt this work, but you must attribute this work as 'Management Science. Copyright [C] 2018 The Author(s). https://doi.org/10.1287/mnsc .2017.2965, used under a Creative Commons Attribution License: https://creativecommons.org/ licenses/by/4.0/.' Funding: Generous support was provided by the National Science Foundation [SES-0850840] and the Behavioral and Neuroeconomics Discovery Fund at Caltech. Open access was sponsored by C. Camerer. Supplemental Material: Data are available at https://doi.org/10.1287/mnsc.2017.2965. Keywords: bargaining * dynamic games * private information * mechanism design * machine learning, 1. Introduction Bargaining is everywhere in economic activity: from price haggling in flea markets, to wage negotiations between unions and firms, to high-stakes diplomacy. Even in competitive, large-scale markets, sequences [...]

Film studios occasionally withhold movies from critics before their release. Because the unreviewed movies tend to be below average in quality this practice provides a useful setting in which to test models of limited strategic thinking: Do moviegoers seem to realize that no review is a sign of low quality? A companion paper showed that in a set of all widely released movies in 2000-2009, cold opening produces a significant 20%-30% increase in domestic box office revenue, which is consistent with moviegoers overestimating quality of unreviewed movies (perhaps due to limited strategic thinking). This paper reviews those findings and provides two models to analyze this data: an equilibrium model and a behavioral cognitive hierarchy model that allows for differing levels of strategic thinking between moviegoers and movie studios. The behavioral model fits the data better, because moviegoer parameters are relatively close to those observed in experimental subjects. These results suggests that limited strategic thinking rather than equilibrium reasoning may be a better explanation for naive moviegoer behavior. Key words: decision analysis; game theory; economics; econometrics; marketing; competitive strategy; bounded rationality; psychology History: Received July 26, 2010; accepted March 6, 2012, by Brad Barber, behavioral economics. Published online in Articles in Advance September 4, 2012., 1. Introduction Game theory has sometimes been criticized as a descriptive model of business practice, or a source of normative advice, on the grounds that most analysis assumes people forecast [...]

The results of experiments on sender-receiver games with an incentive for senders to exaggerate are analyzed. Eyetracking reveals that senders look at payoffs in a way that is consistent with a level-k model. A combination of sender messages and lookup patterns predicts the true state about twice as often as predicted by equilibrium.

A study to collect risk and time preferences of individuals experimentally is presented. The preferences are correlated with demographic and economic variables from the previous Vietnam household survey. The results indicated people living in poor villages are averse to loss of income but not necessarily afraid of income variation.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jet.2008.11.010 Byline: Brian W. Rogers (a), Thomas R. Palfrey (b), Colin F. Camerer (b) Keywords: Experimental economics; Game theory; Cognitive hierarchy; Quantal response equilibrium; Bounded rationality Abstract: We explore an equilibrium model of games where behavior is given by logit response functions, but payoff responsiveness and beliefs about others' responsiveness are heterogeneous. We study two substantively different ways of extending quantal response equilibrium (QRE) to this setting: (1) Heterogeneus QRE, where players share identical correct beliefs about the distribution of payoff responsiveness; and (2) Truncated QRE, where players have downward looking beliefs, systematically underestimating others' responsiveness. We show that the cognitive hierarchy model is a special case of Truncated QRE. We conduct experiments designed to differentiate these approaches. We find significant evidence of payoff responsive stochastic choice, and of heterogeneity and downward looking beliefs in some games. Author Affiliation: (a) Managerial Economics and Decision Sciences (MEDS), Kellogg School of Management, 2001 Sheridan Rd., Jacobs Center 5th Floor, Evanston, IL 60208-2001, United States (b) Division of the Humanities and Social Sciences, Mail Code 228-77, California Institute of Technology, Pasadena, CA 91125, United States Article History: Received 16 March 2007; Revised 2 July 2008; Accepted 5 November 2008

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-0297.2009.02262.x Byline: C. Monica Capra (1), Tomomi Tanaka (2), Colin F. Camerer (3), Lauren Feiler (4), Veronica Sovero (5), Charles N. Noussair (6) Abstract: We introduce an experimental approach to study the effect of institutions on economic growth. In each period, agents produce and trade output in a market, and allocate it to consumption and investment. Productivity is higher if total capital stock is above a threshold. The threshold externality generates two steady states - a suboptimal 'poverty trap' and an optimal steady state. In a baseline treatment, the economies converge to the poverty trap. However, the ability to make public announcements or to vote on competing and binding policies, increases output, welfare and capital stock. Combining these two simple institutions guarantees that the economies escape the poverty trap. Author Affiliation: (1)Emory University (2)Tilburg University (3)California Institute of Technology (4)Arizona State University (5)Carleton College (6)University of California, Los Angeles Article History: Submitted: 30 August 2006 Accepted: 29 May 2008

To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-0297.2007.02103.x Byline: Teck H. Ho (1), Xin Wang (2), Colin F. Camerer (3) Abstract: We extend experience-weighted attraction (EWA) learning to games in which only the set of possible foregone payoffs from unchosen strategies are known, and estimate parameters separately for each player to study heterogeneity. We assume players estimate unknown foregone payoffs from a strategy, by substituting the last payoff actually received from that strategy, by clairvoyantly guessing the actual foregone payoff, or by averaging the set of possible foregone payoffs conditional on the actual outcomes. All three assumptions improve predictive accuracy of EWA. Individual parameter estimates suggest that players cluster into two separate subgroups (which differ from traditional reinforcement and belief learning). Author Affiliation: (1)University of California, Berkeley (2)Brandeis University (3)California Institute of Technology Article History: Submitted: 12 March 2005 Accepted: 16 December 2006

Byline: Teck H. Ho (a), Colin F. Camerer (b), Juin-Kuan Chong (c)(d) Abstract: Self-tuning experience weighted attraction (EWA) is a one-parameter theory of learning in games. It addresses a criticism that an earlier model (EWA) has too many parameters, by fixing some parameters at plausible values and replacing others with functions of experience so that they no longer need to be estimated. Consequently, it is econometrically simpler than the popular weighted fictitious play and reinforcement learning models. The functions of experience which replace free parameters 'self-tune' over time, adjusting in a way that selects a sensible learning rule to capture subjects' choice dynamics. For instance, the self-tuning EWA model can turn from a weighted fictitious play into an averaging reinforcement learning as subjects equilibrate and learn to ignore inferior foregone payoffs. The theory was tested on seven different games, and compared to the earlier parametric EWA model and a one-parameter stochastic equilibrium theory (QRE). Self-tuning EWA does as well as EWA in predicting behavior in new games, even though it has fewer parameters, and fits reliably better than the QRE equilibrium benchmark. Author Affiliation: (a) Haas School of Business, University of California, Berkeley, Berkeley, CA 94720-1900, USA (b) Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125, USA (c) National University of Singapore, 1 Business Link, Singapore 117592, Singapore (d) Sungkyunkwan University, 53 Myungryun-dong 3-ga, Jongro-gu, Seoul 110-745, Korea Article History: Received 4 November 2004; Revised 19 December 2005 Article Note: (footnote) [star] Thanks to participants in the 2000 Southern Economics Association meetings, the Wharton School Decision Processes Workshop, the University of Pittsburgh, the Berkeley Marketing Workshop, the Nobel Symposium on Behavioral and Experimental Economics (December 2001) and C. Monica Capra, David Cooper, Vince Crawford, Ido Erev, Guillaume Frechette, and anonymous referees for helpful comments.

The results of experiments on economic decisions with healthy elderly and young individuals are reported. The theory that age impairs decision making is disproved. Elderly individuals are supported for their objectivity.

To link to full-text access for this article, visit this link: http://dx.doi.org/10.1016/j.jebo.2003.12.001 Byline: Stephanie Kovalchik (a), Colin F. Camerer (b), David M. Grether (b), Charles R. Plott (b), John M. Allman (c) Keywords: Age; Overconfidence; Willingness to pay/accept; Endowment effect; Theory of mind; Game theory; Risk-taking Abstract: We report the results of experiments on economic decisions with two populations, one of healthy elderly individuals (average age 82) and one of younger students (average age 20). We examine confidence, decisions under uncertainty, differences between willingness to pay and willingness to accept and the theory of mind (strategic thinking). Our findings indicate that the older adults' decision behavior is similar to that of young adults, contrary to the notion that economic decision making is impaired with age. Moreover, some of the demonstrated decision behaviors suggest that the elderly individuals are less biased than the younger individuals. Author Affiliation: (a) California Institute of Technology, MSC 323, Pasadena, CA 91125, USA (b) California Institute of Technology, MSC 228-77, Pasadena, CA 91125, USA (c) California Institute of Technology, MSC 216-76, Pasadena, CA 91125, USA Article History: Received 17 March 2003; Accepted 15 December 2003

A cognitive hierarchy model of games is presented to make the two parties in the game know how others are likely to play. This model fits empirical data, and explains why equilibrium theory predicts behavior well in some games and poorly in others.

We use laboratory experiments to explore merger failure due to conflicting organizational cultures. We introduce a laboratory paradigm for studying organizational culture that captures several key elements of the phenomenon. In our experiments, we allow subjects in 'firms' to develop a culture, and then merge two firms. As expected, performance decreases following the merging of two laboratory firms. In addition, subjects overestimate the performance of the merged firm and attribute the decrease in performance to members of the other firm rather than to situational difficulties created by conflicting culture. (Experiments; Organizational Culture; Mergers), Introduction A majority of corporate mergers fall. Failure occurs, on average, in every sense: acquiring firm stock prices tend to slightly fall when mergers are announced; many acquired companies are [...]

To overcome the shortcoming of all adaptive experienced -weighted attraction (EWA) learning model, the generalized teaching model was developed by adding sophistication and strategic teaching to the adaptive EWA model. The generalized model was found to be better in describing and predicting behavior.

Investors in risky assets exhibit disposition effect in that they have the tendency to divest a lesser number of shares when the price declines than when it increases. They also tend to divest less when the price is lesser than the purchase price than when it is higher. Such phenomenon exists due to investors' cautiousness in trying to avoid risk when a certain gain is likely.

We report experiments on how players select among multiple Pareto-ranked equilibria in a coordination game. Subjects initially choose inefficient equilibria. Charging a fee to play (which makes initial equilibria money-losing) creates coordination on better equilibria. When fees are optional, improved coordination is consistent with forward induction. But coordination improves even when subjects must pay the fee (forward induction does not apply). Subjects appear to use a 'loss-avoidance' selection principle: they expect others to avoid strategies that always result in losses. Loss-avoidance implies that 'mental accounting' of outcomes can affect choices in games., In games with multiple equilibria that are Pareto-ranked, players must somehow coordinate their choices to achieve Pareto efficiency. Games of coordination have been widely used in economics to study macroeconomic [...]

A maximum-likelihood estimation method can be used to determine the predictive utility of generalized expected utility theories. This method uses all the information in the data, creates test statistics that can be aggregated across studies and can identify the fit and parsimony of utility theories. One advantage of using the maximum-likelihood estimation method is that it can be applied to other domains in which various theories predict different subsets of choices.

Game theory may have useful applications in business strategy research. Game theory is known to be most applicable to the study of rational behavior in situations where there exists an interdependence of possible outcomes. The study of the logic of situational dynamics should therefore be of interest to business strategy researchers since many areas of corporate strategic planning and implementation may be similarly viewed as situations involving an interdependence in the decision making of rival firms. A discussion of the criticisms frequently posed by business strategy researchers to the use of game theory is provided to examine the possible limitations in its application in business strategy research.

This paper describes a series of laboratory experiments studying whether the form in which items are displayed at the time of decision affects the dollar value that subjects place on them. Using a Becker-DeGroot auction under three different conditions - (i) text displays, (ii) image displays, and (iii) displays of the actual items - we find that subjects' willingness-to-pay is 40-61 percent larger in the real than in the image and text displays. Furthermore, follow-up experiments suggest the presence of the real item triggers preprogrammed consummatory Pavlovian processes that promote behaviors that lead to contact with appetitive items whenever they are available. (JEL C91, D03, D12, D87)

An analysis of B.M. Staw and associate's research on the National Basketball Assn (NBA) data was conducted. The objective was to examine the phenomenon of escalation of commitment by NBA teams to high-ranking players which was not justified by the subsequent performance of the players. A reexamination of the data revealed the persistence of the escalation theory and ruled out rational alternative explanations more effectively than previous studies did.

To purchase or authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-0297.2007.02033.x Byline: Colin F. Camerer (1) Abstract: Neuroeconomics seeks to ground economic theory in detailed neural mechanisms which are expressed mathematically and make behavioural predictions. One finding is that simple kinds of economising for life-and-death decisions (food, sex and danger) do occur in the brain as rational theories assume. Another set of findings appears to support the neural basis of constructs posited in behavioural economics, such as a preference for immediacy and nonlinear weighting of small and large probabilities. A third direction shows how understanding neural circuitry permits predictions and causal experiments which show state-dependence of revealed preference - except that states are biological and neural variables. Author Affiliation: (1)Caltech Article History: Submitted: 3 May 2006 Accepted: 20 September 2006