Abstract

In distributive bargaining, bargainers may have an impulse to bluff and thereby risk an impasse. The current paper does not explain bargaining impasses. For our purposes, it suffices to recognize that bargaining impasses may occur without assuming irrationality. The design problem is to ensure that impasses are avoided as often as possible. One possible solution is to allow for the formation of an agreement by “conduct”. The ‘agreement by conduct’ outcome as a commercial norm may coordinate bargainers’ expectations so as to enable them to perform the same contract, even if they made written demands above ½ (as a bluff). The idea that the “deal-is-on” philosophy as expressed in the “agreement-by-conduct” rule affects and promotes economic exchange is probed in the context of a modified Divide-the-Dollar game.