The evolutionary role of toughness in bargaining

The experimental evidence on the “endowment effect” (Kahneman et al. 1990) and the “self serving bias” in negotiations (Babcok and Loewenstein 1997) suggests that individuals enter a tough state of mind when they have to make a stand vis-avis somebody else. In this work we show how a toughness bias in bargaining may indeed be evolutionary viable. When the inherent toughness of the bargainer is observed by the opponent, this opponent will adjust his behavior accordingly, in a way which may enhance the actual payoff of the biased bargainer. Suppose, then, that a population consists initially of individuals with different inherent degrees of toughness or softness. They are often matched at random to bargain, and biases which are objectively more successful tend to appear more frequently in the society. We show how under various bargaining protocols with asymmetric information, the population will consist, asymptotically, of individuals with some moderate degree of toughness. JEL ClassiÞcation Code.: C78