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Previous experimental research has found that self-Serving biases are a major cause of negotiation impasses. In this study we show that a simple intervention can mitigate such biases and promote efficient settlement of disputes.
“It was raining hard in Frisco/I needed one more fare to make my night”
Harry Chapin, “Taxi”
Theories of labor supply predict how the number of hours people work will change when their hourly wage or income changes. The standard economic prediction is that a temporary increase in wages should cause people to work longer hours. This prediction is based on the assumption that workers substitute labor and leisure intertemporally, working more when wages are high and consuming more leisure when its price - the forgone wage - is low (e.g., Lucas and Rapping 1969). This straightforward prediction has proven difficult to verify. Studies of many types often find little evidence of intertemporal substitution (e.g., Laisney, Pohlmeier, and Staat 1996). However, the studies are ambiguous because when wages change, the changes are usually not clearly temporary (as the theory requires). The studies also test intertemporal substitution jointly along with auxiliary assumptions about persistence of wage shocks, formation of wage expectations, separability of utility in different time periods, and so forth.
An ideal test of labor supply responses to temporary wage increases requires a setting in which wages are relatively constant within a day but uncorrelated across days, and hours vary every day. In such a situation, all dynamic optimization models predict a positive relationship between wages and hours (e.g., MaCurdy, 1981, p. 1074).
A major unsolved riddle facing the social sciences is the cause of impasse in negotiations. The consequences of impasse are evident in the amount of private and public resources spent on civil litigation, the costs of labor unrest, the psychic and pecuniary wounds of domestic strife, and in clashes between religious, ethnic, and regional groups. Impasses in these settings are not only pernicious, but somewhat paradoxical, since negotiations typically unfold over long periods of time, offering ample opportunities for interaction between the parties.
Economists, and more specifically game theorists, typically attribute delays in settlement to incomplete information. Bargainers possess private information about factors such as their alternatives to negotiated agreements and costs to delay, causing the bargainers to be mutually uncertain about the other side's reservation value. Uncertainty produces impasse because bargainers use costly delays to signal to the other party information about their own reservation value. However, this explanation for impasse is difficult to test because satisfactory measures of uncertainty are rare. With only a few exceptions, most field research in this area has been limited to testing secondary hypotheses such as the relationship between wages and strike duration. Experimental tests of incomplete information accounts of impasse have been hindered by the difficulty of completely controlling important aspects of the experimental environment such as the beliefs maintained by the subjects, and those that have been conducted have generally not provided strong support for the specific models under examination.
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