We develop, and experimentally test, models of informal agreements. Agents are assumed to be honest but suffer costs of overcoming temptations. We extend two classical bargaining solutions – split-the-difference and deal-me-out – to this informal agreement setting. For each solution there are two natural ways to do this, leaving us with 2×2 models to explore. In the experiment, a temptations-constrained version of deal-me-out emerges as the clear winner.
- Game theory