Weekly Seminar by Deepal Basak
November 28 @ 1:30 pm - 2:40 pm
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Title: Gambling over Public Opinion
Speaker: Deepal Basak, Indian School of Business
Abstract: We consider bargaining environments in which public opinion provides leverage by making compromises costly. Two agents make initial demands, before observing public opinion. If not settled, agents can bargain again after public opinion is realized, but suffer reputation costs if they compromise, i.e. scale back their initial demands. Under symmetric uncertainty about public opinion, we show that, in the unique symmetric equilibrium, agents make incompatible demands initially, and gamble over public opinion. Any equilibrium features inevitable welfare loss with at least one party making a costly compromise afterwards. This insight is robust to some natural perturbations of the model.