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538. Honesty and Informal Agreements
by Martin Dufwenberg, Marošs Servátka and Radovan Vadovic

We develop, and experimentally test, models of informal agreements. Agents are assumed to be honest but suffer costs of overcoming temptations. We extend two classical bargaining solutions –split-the-difference and deal-me-out –to this informal agreement setting. For each solution there are two natural ways to do this, leaving us with 2x2 models to explore. In the experiment, a temptations-constrained version of deal-me-out emerges as the clear winner. 

Last updated February 23, 2015