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Asymmetric outside options in ultimatum bargaining: a systematic analysis

Heike Hennig-Schmidt, Bernd Irlenbusch, Rainer Rilke () and Gari Walkowitz
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Heike Hennig-Schmidt: University Bonn
Bernd Irlenbusch: University of Cologne
Gari Walkowitz: University Bonn

International Journal of Game Theory, 2018, vol. 47, issue 1, 301-329

Abstract: Abstract We set up a laboratory experiment to investigate systematically how varying the magnitude of outside options—the payoffs that materialize in case of a bargaining breakdown—of proposers and responders influences players’ demands and game outcomes (rejection rates, payoffs, efficiency) in ultimatum bargaining. We find that proposers as well as responders gradually increase their demands when their respective outside option increases. Rejections become more likely when the asymmetry in the players’ outside options is large. Generally, the predominance of the equal split decreases with increasing outside options. From a theoretical benchmark perspective we find a low predictive power of equilibria based on self-regarding preferences or inequity aversion. However, proposers and responders seem to be guided by the equity principle (Selten, The equity principle in economic behavior. Decision Theory, Social Ethics, Issues in Social Choice. Gottinger, Hans-Werner and Leinfellner, Werner, pp 269–281, 1978), while they apply equity rules inconsistently and self-servingly.

Keywords: Ultimatum bargaining; Asymmetric outside options; Experiment (search for similar items in EconPapers)
JEL-codes: C71 C72 C78 C91 D63 (search for similar items in EconPapers)
Date: 2018
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