Anchoring Effect Of Focal Points In Successive Negotiations

This paper theoretically and experimentally examines the anchoring effect of focal points in successive negotiations with different bargaining structures. Two variants of the Nash bargaining game that possibly end in conflict are constructed, which strongly incentivize the players to coordinate using focal points. The effect of two focal points is investigated--the bargainers' power, which determines their expected payoffs if the negotiation breaks down and conflict breaks out, and their endowment, which defines the status quo. The experimental results show that the players demonstrate a high degree of rationality with respect to their demands and backdown decisions. Systematic and solid evidence demonstrates that, in the experimental setting, the focal point “power” has an anchoring effect, while the focal point “endowment” does not. These results indicate the limited role of the legitimacy of ownership in bargaining.