Gambler's fallacy and imperfect best response in legislative bargaining

We analyze data from the legislative bargaining experiments reported in Frechette, Kagel, and Lehrer (2003), Frechette, Kagel, and Morelli (2005a,b), and Drouvelis, Montero, and Sefton (2010) in order to investigate the extent to which the observed deviations from the theoretical predictions can be explained by imperfect best response, in combination with different assumptions about correct (QRE) or incorrect beliefs (QuantalGambler’s Fallacy or QGF) on future proposal power. The basic pattern in the data consists of proposers who allocate resources only within a minimal winning coalition of legislators but do not fully exploit their bargaining power and allocate to their coalition partner(s) a disproportionate share of the pie. The QRE model fits this pattern reasonably well. Incorporating history-dependent beliefs about the future distribution of proposal power into the QRE model leads to an even better match with the data, as this model implies slightly lower shares to the proposer, maintaining similar or higher frequencies of minimal winning coalitions and similar voting behavior. JEL Classification: D72, C92, C70