Aspiration and Bargaining

with Urmee Khan 

Last Updated: Dec 2025

under review

[Link to paper] 

Abstract: Aspirations work as reference points in bargaining. Lower aspirations make bargaining outcomes more attractive compared to the reference point, thereby enhancing gain-loss utility. At the same time, lower aspirations reduce a player’s willingness to wait, leading to a smaller material utility. We characterize the equilibrium in a canonical bargaining game where aspirations can be either exogenous or endogenous, and players care about both overachieving and underachieving relative to their aspirations. In many real-life bargaining situations, such as political negotiations in front of voters, the bargaining outcomes often do not match players’ aspirations. Past research that considered only the concern for underachievement does not explain this discrepancy. In contrast, we show that when bargaining with concern for both over- and underachievement, in equilibrium, at least one player must experience a discrepancy between the aspiration set and the

outcome achieved.