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DR@W Forum: David Hagmann (HKUST)

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Location: WBS 2.007

Principals frequently bargain through agents, and field evidence suggests that such bargaining often ends in costly impasse. While a large literature has examined the potential misalignment of interests between principals and agents, the process that precedes such relationships has been neglected: the principal’s selection of an agent. In this paper, we examine agent-selection in bargaining and show that principals tend to select overly aggressive agents to their own detriment. Across three preregistered experiments (combined n = 3,190), we find that selected agents sent to the bargaining table are not only more polarized in their views than are agents in general (Study 1), but they are also more polarized than the principals whom they represent (Study 2). As a result, principals fare worse than if they were assigned an agent at random or negotiated on their own behalf. Conditional on engaging in agent-selection, both parties could improve their respective outcome by unilaterally selecting a less aggressive agent. In an extension with repeated selection and information asymmetry, we show that these less-aggressive agents fail to persist in the market. Principals neglect the increasing polarization of the agent pool, continue to select relatively aggressive agents, and become more polarized in their own beliefs (Study 3).

Tags: Draw Forum

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