Final Offer or Baseball Arbitration, commonly employed in real estate contracts, has been widely studied but primarily in the area of labor disputes. This paper applies the game theoretical models developed in the literature, particularly the work of Brams and Merrill, to the area of real estate, and reviews the results of an experiment in rent determination conducted with real estate professionals. The results of the experiment show consistently sub-optimal behavior by the bidders, which the paper attempts to explicate through ideas developed in the areas of utility theory and mean-variance analysis. The author provides some conclusions designed to assist practitioners.
Game Theory and Real Estate Practice in Final Offer Arbitration
