We analyze a game of two-sided private information where players
have privately known "strengths" and can decide to fight or compromise.
If either chooses to fight, the stronger player receives a high
payoff and the weaker player receives a low payoff. If both choose
to compromise, each player receives an intermediate payoff. The
only equilibrium is for players to always fight. In our experiment, we
observe frequent compromise, more fighting the lower the compromise
payoff and less fighting by first than second movers. We explore
several theories of cognitive limitations in an attempt to understand
these anomalous findings. (JEL C91, D82)
Carrillo, Juan D., and Thomas R. Palfrey.
"The Compromise Game: Two-Sided Adverse Selection in the Laboratory."
American Economic Journal: Microeconomics,
Design of Experiments: Laboratory, Individual
Asymmetric and Private Information