Bargaining and Coalition Formation Dr James Tremewan (james.tremewan@univie.ac.at) Culture and Bargaining
Culture and Bargaining Culture and Bargaining • ”Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburch, and Tokyo”, Roth et al (1991). • Classic paper for cross-cultural research. Discusses in depth and develops methodology to deal with challenges in cross-cultural experiments. • Compares behaviour in four cities in different countries (no definition of ”culture” and number of countries too small to test for what elements of culture are important). • ”Co-operation, Reciprocity and Punishment in Fifteen Small-scale Societies”, Henrich et al (2001) • Compares behaviour in 15 hunter-gatherer and nomadic societies. • Explains differences by economic structure of societies (culture=economic/social institutions?). 2/39
Culture and Bargaining Culture and Bargaining • Interlude: Measuring Culture. A systematic attempt to define and measure culture, based on the work of Geert Hofstede. • Uses ”factor analysis” of survey data to identify five ”dimensions” of culture. • Nice because (pretty much) objective, widely used in economics and other fields, and correlates with various macro variables etc. • ”Cultural Differences in Ultimatum Game Experiments”, Oosterbeek et al (2004) • Meta-Analysis of 37 existing papers, with enough countries to look at correlation between behaviour and measures of corruption (from Hofstede and WVS). • ”An Economic Anatomy of Culture”, Chuah et al (2009) • Only two countries but looks at cross-country differences in behaviour and values, and how individual values effect individual behaviour to gain insight on which aspects of culture explain cross-country differences. 3/39
Roth et al (1991) Roth et al (1991) • Ultimatum game played in four locations: Jerusalem, Ljubljana, Pittsburgh, Tokyo: • Subjects were all university students. • 10 rounds of stranger-matching as either proposer or receiver. • Anonymous, learn results of own negotiation after each round. • Paid one random round. • Challenges of cross-cultural experiments: • Experimenter effects: uncontrolled procedural or personal differences among experimenters. • Language effects: differences caused by translations (even if instructions in same language, some words may have different connotations). • Currency effects: same numbers ⇒ different purchasing power, same purchasing power ⇒ different numbers (scale, rounding). 4/39
Roth et al (1991) Experimenter Effects: Solutions • Each experimenter ran at least one session in Pittsburgh: • Enabled better coordination of operational procedures. • Data could be used to test for experimenter vs between-country effects: any experimenter effect should show up in Pittsburgh data as well as in cross-country data. • Alternative: have the same experimenter present at all sessions (e.g. Cameron et al, 2009). But may be language problems, or reaction to presence of foreigner. 5/39
Roth et al (1991) Translation Effects: Solutions • Translations: • The experimenter responsible is a national of ”other” country and linguistically and culturally fluent in American English. • Phrases chosen that could be faithfully translated (i.e. avoid words with no equivalents, or heavy connotations). • Control for translation differences: • Also ran a market experiment using same vocabulary as bargaining experiment. • Claim: if between-country differences found in bargaining but not in market game, this places ”upper bound” on effect of translation. • Alternative: ”back translation” where second translator independently translates the instructions back into original language which can be compared directly to original to identify important differences. 6/39
Roth et al (1991) Currency Effects: Solutions • Purchasing power: • Potential payoff in Pittsburgh sessions ranged form $10 to $30. • In other countries payoff chosen to be on the high side of purchasing power equivalent of $10. • If results from other countries fall outside range of results in Pittsburgh then strong evidence for other factors. • Numerical issues: pie of size 1000 tokens in all countries (different token/local currency exchange rates), with proposals limited to multiples of 5. 7/39
Roth et al (1991) Results: Proposer behaviour 1 • Modal offer in first round: 500 in all countries. • Modal offer(s) in tenth round: • 400 in Israel. • 400 and 450 in Japan. • 500 in Yugoslavia and United States. • Downward trend in Israel and Japan, no significant trend in Yugoslavia or US. 1 I will not discuss statistical tests here. Some of the assumptions are a bit dodgy, such as treating all observations in given round as independent despite stranger-matching (strictly speaking only first-round observations are independent). 8/39
Roth et al (1991) Results: Responder behaviour • Overall proportion of rejected offers similar across countries (large differences in final round, but large fluctuations and no obvious trend). • Pairwise between-country comparisons of acceptance rates by offer size (see next slide) suggests ”low-offer” countries (i.e. Israel and Japan) have higher rates of acceptance for all offers. • Modal offer in tenth round consistent with proposer maximising expected earnings given responder behaviour . 9/39
Roth et al (1991) Results: Responder behaviour 10/39
Roth et al (1991) Discussion • Bargaining behaviour in all countries differs markedly from SPE prediction. • Significant differences between countries in both proposer and responder behaviour. • Authors say differences not related to ”toughness” in bargaining: in tougher bargaining one would expect lower offers, but higher rates of rejection. • Differences appear to be related to responders’ differing ideas about what is a ”reasonable offer.” In unfamiliar environment it takes time for proposers to identify what is socially acceptable. • Criticisms: • City or country differences? • ”God-of-the-gaps” definition of culture: cross-country differences that can’t currently be explained by other factors. 11/39
Henrich et al (2001) In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies, Henrich et al (2001) • Ultimatum game played in 15 (17) small-scale societies: • Unlike previous studies, subjects NOT university students. • Subjects play only one game in one role. • Anonymous. • Size of pie roughly equal to one or two day’s wages (mostly paid in money, but sometimes tobacco or other goods). • Controls for variations in implementation not so good as previous paper for practical reasons (e.g. few Sangu herders are linguistically and culturally fluent in American English), but • Experiments run from identical protocols. • Stake sizes as similar as possible. • Experimenter effects tested where possible (none found). 12/39
Henrich et al (2001) 13/39
Henrich et al (2001) Results: General observations • No society behaves in line with SPE prediction: • Lowest mean offer: 0.26; lowest modal offer: 0.15. • Typically some non-zero offers rejected (interestingly there are some groups which never rejected offers, but it is not clear that they would not have rejected smaller offers - need strategy method). • Much wider variation in behaviour than in previous WEIRD 2 studies: • Means: 26-58% (cf. weird 40-50%). • Modes: 15-50% (cf. weird 50% in first round). • Rejection behaviour: • Frequent rejections of offers over 50% (Au and Gnau). • Zero rejection of low offers (Tsimane). • Offers not income maximising given rejection probabilities (but unlike Roth et al. no opportunity for learning). 2 Western Educated Industrialized Rich Democracies, see Henrich, Heine, and Norenzayan, 2010. 14/39
Henrich et al (2001) Results: Relationship between proposer behaviour and economic structure • Payoff to Cooperation (PC): how important is cooperation in economic production (low: Machiguenga who are economically independent at family level; high: Lamelara hunt whales in 12+ person canoes). • Market integration (MI): how much do people rely on market exchange in daily life. • PC and MI measured using indices constructed by general discussion in research team before data was gathered. • Both PC and MI positively related to group mean offers (highly significant), jointly explaining 68% of variation. • Robust to inclusion of individual measures (sex, age, wealth...), none of which were significant. 15/39
Henrich et al (2001) Discussion • When faced with novel situation, subjects seek cues from previous related experiences. • Among Au and Gnau accepting gifts commits one to reciprocate and establishes subordinate status, hence rejection of high offers. • Sharing of results of hunt standard amongst Ache despite no associated punishment, hence high offers and lack of rejections. • Authors say their results suggest that preferences are not exogenous, but shaped by social and economic interactions... questions calculation of welfare effects of policy changes that do not take this into account (e.g. introducing markets may reduce cooperative behaviour or result in less concern for others e.g. Armin Falk’s mice). 16/39
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