Talk is Cheap, Communication is Hard: Dynamic Grounding Failures and Repair in Multi-Agent Negotiation

Grounding is the collaborative process of establishing mutual belief sufficient for the current communicative purpose. While static grounding maps language to a shared, externally observable context, dynamic grounding is a joint activity where meaning is negotiated through interaction. Current multi-agent Large Language Model (LLM) benchmarks focus on static, one-shot tasks, overlooking the ability to repair grounding breakdowns across turns. We introduce an iterated, multi-turn negotiation game in which two agents allocate shared resources toward private projects with verifiable jointly optimal outcomes. While individual agents can identify Pareto-optimal allocations in isolation, agent dyads consistently fail to reach them across open- and closed-source models. Our investigation reveals four failure modes: (1) coordination degrades when shared interaction history is absent; (2) yet accumulated context can itself become a liability through stubborn anchoring, where initial proposals are treated as axiomatic rather than negotiable; (3) a reliance on perfunctory fairness (equal resource splits) over reward-maximizing coordination; and (4) failures in referential binding, where agents lose track of commitments across turns. These results highlight dynamic grounding as a critical and understudied axis of multi-agent coordination. Our framework decomposes the coordination gap into measurable components: the oracle baseline establishes that the gap is not attributable to individual reasoning limitations; the no-talk baseline establishes that communication is necessary; and a full-transparency intervention establishes that information exchange alone is insufficient: the bottleneck lies in the interactive processes of joint plan formation, commitment, and execution that constitute dynamic grounding.