CeDEx Brown Bag Seminar - Alex Possajenikov

Title:  Private Value Bargaining with Communication: Does Cheap Talk Lead to Efficiency?

Abstract: We consider two-player double-auction private-value bargaining with discrete two-point overlapping distributions of traders' valuations for which fully efficient equilibria exist. In an experiment, we also have a cheap-talk face-to-face communication stage before setting bid and ask in the auction. We find that, although efficiency is higher with communication than without, the outcome is still not fully efficient. Despite incentives to exaggerate their private information, most subjects reveal their private values in the communication stage and then split the trade surplus equally. But there are a few subjects who do exaggerate; those subjects typically earn more than those who do not exaggerate, but this also leads to an occasional loss of trade surplus.