The Dark Side of the Future: An Experimental Test of Commitment Problems in Bargaining

While most existing theoretical and experimental literatures focus on how a high probability of repeated play can lead to more socially efficient outcomes (for instance, using the result that cooperation is possible in a repeated prisoner's dilemma), this paper focuses on the detrimental effects of repeated play—the “dark side of the future.” I study a resource division model with repeated interaction and changes in bargaining strength. The model predicts a negative relationship between the likelihood of repeated interaction and social efficiency. This is because the longer shadow of the future exacerbates commitment problems created by changes in bargaining strength. I test and find support for the model using incentivized laboratory experiments. Increases in the likelihood of repeated play lead to more socially inefficient outcomes in the laboratory.