The project aims at exploring a fundamental issue in strategic decision making, namely the behavioral relevance of Backward Induction, BI, and Forward Induction Reasoning, FIR via a novel experimental design based on the ''Acquiring-a-Company'' game (Bazerman and Samuelson 1983; Samuelson and Bazerman, 1985), which will be modified by adding an initial outside option. This design will allow to get new insights on the effects of private information and signaling on the empirical differences between BI and FIR.
The main novelty of the research is the new experimental design described in the previous section. Because of its original characteristics, this design will allow to advance knowledge via addressing several research questions, such as:
- is the (non-)occurrence of FIR affected by stochasticity of the pie size and by the signaling role that the decision to opt in entails?
- Regarding the behavior of the buyer, will (the effects of) the veto power of the seller be influenced by the possibility to opt out of the bargaining game?
- Regarding the behavior of the seller, will altruistic sanctioning and rewarding be affected by the possibility to opt out of the bargaining game?
- Will the choice of opting in by the seller reveal trust in buyer, in the sense of expecting a price offer at least as large as the forgone payoff? And will the buyer be trustworthy in return?
Answering these questions via a controlled experiment will allow to add reliable evidence on actual modes of behavior in bargaining games with incomplete information and this will have important implications not only in terms of scientific knowledge, but also of policy implications, as the labor market frame suggests.