Asymmetric Inequality Aversion and Noisy Behavior in Alternating-Offer Bargaining Games

Jacob Goeree and Charles Holt

Virginia Economics Online Papers from University of Virginia, Department of Economics

Abstract: In two-stage bargaining games with alternating offers, the amount of the pie that remains after a rejection is what the first player should offer to the second player, since the second player can capture this remainder in the final (ultimatum) stage. Fairness considerations will reduce the correlation between first-stage offers and the size of the remaining pie, but randomness in behavior will have the same "flattening" effect. This paper reports an experiment designed to separate these considerations, by introducing asymmetric fixed money payments to each player. These endowments do not affect the perfect positive correlation between initial Nash offers and the remaining pie, but are selected to induce a perfectly negative relationship between the remaining pie size and the first-stage offer that would equalize final earnings of the two players. This negative relationship is apparent in the data, which suggests the importance of fairness considerations. A theoretical model of asymmetric inequality aversion and stochastic choice is used to provide maximum likelihood estimates of utility and logit error parameters. The parameters representing "envy," "guilt," and logit errors are all significant, and the resulting model produces the observed negative relationship between initial offers and residual pie size.

Keywords: bargaining; ultimatum game; bounded rationality; logit equilibrium; fairness; equity aversion; endowment effects; envy; guilt (search for similar items in EconPapers)
JEL-codes: C72 C92 (search for similar items in EconPapers)
Pages: 13 pages
New Economics Papers: this item is included in nep-cdm, nep-exp, nep-gth and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (69)

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Related works:
Journal Article: Asymmetric inequality aversion and noisy behavior in alternating-offer bargaining games (2000)
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Persistent link: https://EconPapers.repec.org/RePEc:vir:virpap:329

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