Aspiration and Bargaining

with Urmee Khan 

Last Updated: May 2026

under review

[Link to paper] 

Abstract: We analyze Rubinstein bargaining with reference-dependent preferences, treating aspirations as reference points. The model addresses bargaining before an audience, where leaders’ reputations depend on outcomes relative to public aspirations. Aspirations are jointly consistent if both players attain them in equilibrium. For exogenous aspirations, joint consistency holds if and only if aspirations are moderate and sum to one. For endogenous aspirations, joint consistency fails: in pure strategy equilibria, someone lowballs; in mixed strategy equilibria, someone overreaches with positive probability. If one leader cares enough about reputation gain while the other does not, the reputation-focused leader’s constituents bear the cost.