Prospect Theory and Coercive Bargaining

Bibliographic Data

ID6284986
AuthorsChristopher K Butler (University of New Mexico, corresponding author)
Year2007
Volume51
Issue2
Pages227-250
Publication date2007-04-01
Peer ReviewedYes
Open AccessYes
TypeARTICLE
VenueJournal of Conflict Resolution (JOURNAL)
Journal identifiersISSN: 0022-0027 • E-ISSN: 1552-8766
PublisherSAGE Publications Inc (PUBLISHER)
DOI10.1177/0022002706297703
OpenAlexW2130136032
LanguageEN
Citations received10
References cited41

Despite many applications of prospect theory's concepts to explain political and strategic phenomena, formal analyses of strategic problems using prospect theory are rare. Using Fearon's model of bargaining, Tversky and Kahneman's value function, and an existing probability weighting function, I construct a model that demonstrates the differences between expected value and prospect theory when applied to strategic interaction. Critically important to this demonstration is an examination of different types of reference points that make sense for bargaining problems. Four types of reference points are discussed and analyzed: power-based, equity, variants of the status quo, and extreme ``I-want-it-all'' reference points. Each of these types of reference points produce different bargaining behavior at the individual level and in combination with the type of reference point of the other actor. Additionally, I demonstrate that bargaining failure is possible for this model under complete and perfect information using prospect-theoretic logic

Econometrics · Economics · Function (biology · Loss aversion · Mathematical economics · Microeconomics · Positive economics · Prospect theory · Statistics · Value (mathematics · Weighting · Economic Theory and Institutions · Experimental Behavioral Economics Studies · Game Theory and Applications · Mathematics

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