Aspiration and Bargaining

Last Updated: June 2024

Working paper (Undergoing significant changes)

Abstract: Two leaders simultaneously and publicly choose their aspirations that set the expectations of their constituents and then bargain `a la Rubinstein with frequent offers. In addition to the material payoff for her constituents, a leader also cares about her reputation cost for not meeting expectations or reputation gain for exceeding expectations. We show that there is no equilibrium in which both leaders always set the right expectations. In any pure strategy equilibrium, at least one of the leaders lowballs expectations, and in any mixed strategy equilibrium, at least one of the leaders sometimes overreaches. If a leader cares enough about a political win, then she lowballs, and this adversely affects her constituents if the opposition does not lowball.

Presentation (By one of the authors): Bargaining: Experiment, Empirics, and Theory, Seoul (scheduled)

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