Efficiency, Equality and Labelling: An Experimental Investigation of Focal Points in Explicit Bargaining Andrea Isoni, Anders Poulsen, Robert Sugden and Kei Tsutsui 20 November 2013 ♠ Abstract We investigate Schelling’s hypothesis that payoff-irrelevant labels (‘cues’) can influence the outcomes of bargaining games with communication. In our experimental games, players negotiate over the division of a surplus by claiming valuable objects that have payoff- irrelevant spatial locations. Negotiation occurs in continuous time, constrained by a deadline. In some games, spatial cues are opposed to principles of equality or efficiency. We find a strong tendency for players to agree on efficient and minimally unequal payoff divisions, even if spatial cues suggest otherwise. But if there are two such divisions, cues are often used to select between them, inducing distributional effects. Keywords : explicit bargaining, focal point, labels, salience, cheap talk JEL classification : C72, C78, C91 ♠ Isoni: Department of Economics, University of Warwick, Coventry (UK), CV4 7AL, email:
[email protected] . Poulsen: Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich (UK), NR4 7TJ, email:
[email protected] . Sugden (corresponding author): Centre for Behavioural and Experimental Social Science and Centre for Competition Policy, University of East Anglia, Norwich (UK), NR4 7TJ, email:
[email protected] . Tsutsui: Frankfurt School of Finance and Management, 60314 Frankfurt am Main, email:
[email protected] . This research was supported by the Economic and Social Research Council of the UK (award no. RES-000-22-3322). 1 In The Strategy of Conflict , Thomas Schelling (1960: 53, 67–74) proposes the hypothesis that the outcomes of bargaining problems can be systematically influenced by ‘incidental details’ or (as they would now be called) properties of framing or labelling.