Investment and Opportunity Costs in Bargaining

A common feature of many situations of bargaining over a commonly created surplus is that bargainers have to make direct costly investment to create the surplus as well as incurring opportunity cost, by forgoing respective outside options. Theoretically these cost types constitute two sides of the same coin, but bargainers may feel different strength of entitlements depending on the source/frame of the cost. In this study we provide experimental evidence that whether the cost made by a party is presented in terms of an investment or in terms of an opportunity costs indeed affects the negotiation of the surplus. Costs presented as investment in direct relation to the revenue to be divided appear to play a larger influence on the negotiation outcome than costs presented as outside options.

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