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From Ultimatum to Nash Bargaining: Theory and Experimental Evidence

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  • Sven Fischer
  • Werner Güth
  • Wieland Müller

Abstract

We examine the strategic behavior of first and second movers in a two party bargaining game with uncertain information transmission. When the first mover states her demand she does only know the probability with which the second mover will be informed about it. If the second mover is informed, she can either accept or reject the offer and payoffs are determined as in the ultimatum game. If she is not informed, the second mover states her own demand and payoffs are determined as in the Nash demand game. In the experiment we vary the commonly known probability of information transmission. Our main finding is that first movers' and uninformed second movers' demands adjust to this probability as qualitatively predicted, that is, first movers' (uninformed second movers') demands are lower (higher) the lower the probability of a signal.

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Bibliographic Info

Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2003-07.

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Length: 32 pages
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Handle: RePEc:esi:discus:2003-07

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Keywords: commitment; imperfect observability; ultimatum bargaining game; Nash bargaining game; experiments;

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References

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  1. Kyle Bagwell, 1992. "Commitment and Observability in Games," Discussion Papers 1014, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Huck, Steffen & Muller, Wieland, 2000. "Perfect versus Imperfect Observability--An Experimental Test of Bagwell's Result," Games and Economic Behavior, Elsevier, vol. 31(2), pages 174-190, May.
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  8. Guth, Werner, 1995. "On ultimatum bargaining experiments -- A personal review," Journal of Economic Behavior & Organization, Elsevier, vol. 27(3), pages 329-344, August.
  9. Harsanyi John C., 1995. "A New Theory of Equilibrium Selection for Games with Incomplete Information," Games and Economic Behavior, Elsevier, vol. 10(2), pages 318-332, August.
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Cited by:
  1. Anders U. Poulsen & Michael W. M. Roos, 2009. "Do people make strategic commitments? Experimental evidence on strategic information avoidance," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 09-01, School of Economics, University of East Anglia, Norwich, UK..
  2. Werner Güth & Martin G. Kocher, 2013. "More than thirty years of ultimatum bargaining experiments: Motives, variations, and a survey of the recent literature," Jena Economic Research Papers 2013-035, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  3. Poulsen, Anders, 2007. "Learning to Make Strategic Moves: Experimental Evidence," MPRA Paper 10927, University Library of Munich, Germany.
  4. Güth, W. & Müller, W. & Spiegel, Y., 2006. "Noisy leadership: An experimental approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-193643, Tilburg University.
  5. Avrahami, Judith & Güth, Werner & Hertwig, Ralph & Kareev, Yaakov & Otsubo, Hironori, 2013. "Learning (not) to yield: An experimental study of evolving ultimatum game behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 47(C), pages 47-54.
  6. Uschi Backes-Gellner & Donata Bessey & Kerstin Pull & Simone Tuor, 2008. "What Behavioural Economics Teaches Personnel Economics," Working Papers 0077, University of Zurich, Institute for Strategy and Business Economics (ISU).
  7. Feltovich, Nick & Swierzbinski, Joe, 2011. "The role of strategic uncertainty in games: An experimental study of cheap talk and contracts in the Nash demand game," European Economic Review, Elsevier, vol. 55(4), pages 554-574, May.
  8. Tanja Hörtnagl & Rudolf Kerschbamer, 2014. "How the Value of Information Shapes the Value of Commitment Or: Why the Value of Commitment Does Not Vanish," Working Papers 2014-03, Faculty of Economics and Statistics, University of Innsbruck.
  9. Poulsen, Anders U. & Tan, Jonathan H.W., 2004. "Can Information Backfire? - Experimental Evidence from the Ultimatum Game," Working Papers 04-16, University of Aarhus, Aarhus School of Business, Department of Economics.

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