Final Offer Arbitration With Asymmetric Evidence

ABSTRACT

As disputants increasingly rely upon arbitration, it is critical to understand outcomes that are likely to arise from mechanisms like final offer arbitration. While a sizable experimental literature investigating strategic behavior in final offer arbitration exists, that work has overwhelmingly focused on situations where the arbitrator's beliefs about the appropriate resolution are symmetric. This paper considers a setting where the arbitrator's beliefs depend on the strength of each disputant's case. We find that disputant responses to changes in the relative strength of their case generally follow comparative statics predictions even though offers are generally less aggressive than predicted. Further, we find that final offers are closer to theoretical predictions when the variance of the arbitrator's preferences is lower. However, we also observe that disputants become more aggressive the more the arbitrator's preferences are skewed in the disputant's favor.