Bargaining procedures that induce honesty

Steven Brams, D. Marc Kilgour

    Research output: Contribution to journalArticle

    Abstract

    When bargaining between two actors over an object is modeled as a noncooperative game of incomplete information, equilibrium bids generally involve misrepresentation of the players' true values. But the bargainers' payoffs can be modified so that truthfully revealing one's reservation price is a dominant strategy. While such modifications define bargaining procedures that induce honesty in bidding and thereby avoid an inefficient outcome, these procedures may be vulnerable to other difficulties. The procedures analyzed are the following: Bonus Procedure: the players share a bonus equal to the overlap in their bids, whenever a settlement is feasible; Penalty Procedure: the settlement is reduced (usually probabilistically) to a level proportionate to the overlap of the bids, whenever a settlement is feasible; Appraisal Procedure: there is a settlement when, and only when, an independent appraisal is above the seller's and below the buyer's bid. The appraisal value is then the exchange price; Expansive Appraisal Procedure: there is a settlement at the appraised value, unless it is unfavorable to both the buyer and the seller. These honesty-inducing procedures are evaluated according to several criteria, namely, efficiency in achieving feasible trades, ability to be self-financing (rather than requiring a subsidy), vulnerability to collusion, and compatibility with each player's individual interests. Besides these theoretical assessments, practical considerations, including the need for a settlement, the means of implementation, and so on, are discussed.

    Original languageEnglish (US)
    Pages (from-to)239-262
    Number of pages24
    JournalGroup Decision and Negotiation
    Volume5
    Issue number3
    StatePublished - May 1996

    Fingerprint

    Values
    Honesty
    subsidy
    penalty
    vulnerability
    efficiency
    Bid
    ability
    Players
    Bonus
    Seller
    Buyers
    Overlap
    Dominant strategy
    Games of incomplete information
    Subsidies
    Penalty
    Bidding
    Compatibility
    Reservation price

    Keywords

    • Bargaining
    • Chatterjee-Samuelson procedure
    • Collusion
    • Ex-post efficiency
    • Incentive compatibility
    • Nash equilibrium
    • Revelation principle
    • Third-party intervention

    ASJC Scopus subject areas

    • Management of Technology and Innovation
    • Strategy and Management
    • Decision Sciences(all)
    • Social Sciences(all)

    Cite this

    Brams, S., & Kilgour, D. M. (1996). Bargaining procedures that induce honesty. Group Decision and Negotiation, 5(3), 239-262.

    Bargaining procedures that induce honesty. / Brams, Steven; Kilgour, D. Marc.

    In: Group Decision and Negotiation, Vol. 5, No. 3, 05.1996, p. 239-262.

    Research output: Contribution to journalArticle

    Brams, S & Kilgour, DM 1996, 'Bargaining procedures that induce honesty', Group Decision and Negotiation, vol. 5, no. 3, pp. 239-262.
    Brams, Steven ; Kilgour, D. Marc. / Bargaining procedures that induce honesty. In: Group Decision and Negotiation. 1996 ; Vol. 5, No. 3. pp. 239-262.
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