Eric Cardella

The Impact of Award Uncertainty on Settlement Negotiations

Legal disputes are often negotiated under the backdrop of an adjudicated award. While settlements are common, they are not universal. In this paper, we empirically explore how uncertainty in adjudicated awards impacts settlement negotiations. To do so, we develop an experimental design to test how increases in variance and positive skewness of the award distribution impact negotiations and settlement rates. We find increases in variance decrease settlement rates, while increases in skewness generally increases settlement rates. We also gather individual measures of risk aversion and prudence, and incorporate these measures into the analysis to test for heterogeneous treatment effects. Overall, our results suggest that highly variable adjudicated awards can contribute to the excess use of inefficient litigation, while more positively skewed awards can reduce the use of inefficient litigation.

Exploiting the Guilt Aversion of Others - Do Agents Do It and Is It Effective?

Abstract The general idea of guilt aversion is that agents may be motivated to avoid letting others down, even at the expense of their own material payoff. Several experimental studies have documented behavior that is consistent with agents exhibiting guilt averse motivations in social interactions. However, there are strategic implications of guilt aversion, which can impact economic outcomes in important ways, that have yet to be explored. I introduce a game that admits the possibility for agents to induce guilt upon others in a manner consistent with the method posited by Baumeister et al. (Psychol Bull 115:243–267, 1994). This game enables me to experimentally test whether agents attempt to exploit the guilt aversion of others by inducing guilt upon them, and whether agents are actually susceptible to this exploitation. Additionally, the design enables me to test whether agents exhibit higher degrees of trust when they are given such an opportunity to exploit the guilt aversion of others. The data suggest that agents do not attempt to fully exploit the guilt aversion of other agents by inducing guilt upon them; however, the data suggest that agents would have been susceptible to guilt induction.

Negotiating Flexible Prices

In many markets, the price of a good or service is flexible. Buyers can either buy at the posted price or attempt to negotiate a lower price. A seller’s decision about whether to allow flexible prices and subsequent outcome in these types of flexible price markets depends, in large part, on buyer behavior. Furthermore, these markets are likely to feature substantial variation in buyer valuations. In this study we experimentally examine the negotiation tendencies of buyers when prices are flexible, and the interaction of these tendencies with variation in buyer values. Specifically, how does a buyer’s value impact: (i) the buyer’s decision to negotiation the price, (ii) the buyer’s sequence of counter-offers, conditional on negotiating the price, (iii) the final negotiated sale price, and (iv) the length of the negotiation. Our results indicate that variation in buyer values does impact some parts of the negotiation process.

Output restriction and the ratchet effect: Evidence from a real-effort work task

The “ratchet effect” is a phenomenon where workers strategically restrict their output because they anticipate high levels of productivity will be met with increased expectations in the future. Using a real-effort work task and a piece-rate incentive scheme, we investigate the presence of the ratchet effect using two different methods for evaluating worker productivity: (i) when productivity is evaluated individually, and (ii) when productivity is evaluated collectively among a group of workers. We find strong evidence that workers restrict output when productivity is evaluated individually. However, we find little evidence of output restriction when productivity is evaluated at the group-level, which we attribute to the coordination problem and the free-riding incentive that emerge within the group. Although, output restriction re-emerges if workers are able to communicate. We also examine an important dynamic implication of the ratchet effect, and our results indicate that output restriction reduces future productivity through reduced learning-by-doing.

The Effect of Listing Price Strategy on Real Estate Negotiations: An Experimental Study

When selling a home, an important decision facing the homeowner is choosing an optimal listing price. This decision will depend in large part on how the chosen list price impacts the post negotiation final sale price of the home. In this study, we design an experiment that enables us to identify how different types of common list price strategies affect housing negotiations. Specifically, we examine how rounded, just below, and precise list prices impact the negotiation behavior of the buyer and seller and, ultimately, the final sale price of the home. Our results indicate that the initial list price strategy does play an important role in the negotiation process. Most notably, a high precise price generates the highest final sale price, smallest percentage discount off the list price, and the largest fraction of the surplus to the seller, while just below pricing leads to the lowest final price, largest percentage discount, and smallest fraction of the surplus to the seller. This pattern seems to be largely driven by sellers making persistently higher and more precise counter-offers throughout the negotiation process when the initial list price is high precise. Interestingly, these effects generally attenuate with negotiating experience. Importantly, our experimental results are generally consistent, both in direction and magnitude, with the limited transactions-based empirical studies relating to real estate listing prices.