American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
The Compromise Game: Two-Sided Adverse Selection in the Laboratory
American Economic Journal: Microeconomics
vol. 1,
no. 1, February 2009
(pp. 151–81)
Abstract
We analyze a game of two-sided private information where players have privately known "strengths" and can decide to fight or compromise. If either chooses to fight, the stronger player receives a high payoff and the weaker player receives a low payoff. If both choose to compromise, each player receives an intermediate payoff. The only equilibrium is for players to always fight. In our experiment, we observe frequent compromise, more fighting the lower the compromise payoff and less fighting by first than second movers. We explore several theories of cognitive limitations in an attempt to understand these anomalous findings. (JEL C91, D82)Citation
Carrillo, Juan D., and Thomas R. Palfrey. 2009. "The Compromise Game: Two-Sided Adverse Selection in the Laboratory." American Economic Journal: Microeconomics, 1 (1): 151–81. DOI: 10.1257/mic.1.1.151Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D82 Asymmetric and Private Information
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