Negotiation as the Art of the Deal


Negotiation is a ubiquitous and consequential form of economic interaction. It is deal-making in the absence of a designer. We propose a theory of negotiation in which deals have many aspects. This leads to a new perspective on the welfare consequences of asymmetric information, which we examine via both theory and experiments. In a robust class of settings of asymmetric information, it is in each agent’s interest to truthfully reveal her private information, which comes about because of the benefits of identifying areas of mutual gain. We show that equilibria are efficient, with significant implications for applications.

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