DP6807 Cooling-Off in Negotiations - Does It Work?

Author(s): Jörg Oechssler, Andreas Roider, Patrick W. Schmitz
Publication Date: April 2008
Keyword(s): behavioural biases, cognitive abilities, cooling-off, emotions, internet experiment, negotiations, ultimatum game
JEL(s): C78, C99, D8
Programme Areas: Labour Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=6807

Negotiations frequently end in conflict after one party rejects a final offer. In a large-scale internet experiment we investigate whether a 24-hour cooling-off period leads to fewer rejections in ultimatum bargaining. We conduct a standard cash treatment and a lottery treatment, where subjects received lottery tickets for several large prizes - emulating a high-stakes environment. In the lottery treatment, unfair offers are less frequently rejected, and cooling-off significantly reduces the rejection rate further. In the cash treatment, rejections are more frequent and remain so after cooling-off. This treatment difference is particularly pronounced for subjects with lower cognitive abilities.