Overconfidence and Bargaining over a Jointly Produced Output
We use a laboratory experiment to explore the effects and interactions of three variables judged important when bargaining over a jointly produced surplus: self-confidence, size of surplus, and performance information. We exogenously manipulate self-confidence by employing hard and easy trivia quizzes. We manipulate the size of the jointly produced surplus by assigning a high (low) surplus to pairs whose average performance on the trivia quiz is above (below) the median. We find that bargaining failures occur when overconfident subjects bargain over a low surplus. This finding holds no matter if subjects are informed or not about who was the best performer in their pair.