Econometrica: Jan 2005, Volume 73, Issue 1

Uncertainty about Uncertainty and Delay in Bargaining

https://doi.org/10.1111/j.1468-0262.2005.00565.x
p. 69-91

Yossi Feinberg, Andrzej Skrzypacz

We study a oneā€sided offers bargaining game in which the buyer has private information about the value of the object and the seller has private information about his about the buyer's valuation. We show that this uncertainty about uncertainties dramatically changes the set of outcomes. In particular, second order beliefs can lead to a delay in reaching agreement even when the seller makes frequent offers. We show that not all types of second order beliefs lead to a delay. When the buyer assigns positive probability to the seller knowing the buyer's value, then delay not only occur, but it occur for a class of equilibria. However, in all other cases delay will never occur.

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