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Self-Serving Use of Equity Rules in Bargaining with Asymmetric Outside Options

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  • Hennig-Schmidt, Heike

    ()
    (University of Bonn)

  • Irlenbusch, Bernd

    ()
    (University of Cologne)

  • Rilke, Rainer Michael

    ()
    (University of Cologne)

  • Walkowitz, Gari

    ()
    (University of Cologne)

Abstract

We experimentally investigate multiple notions of equity in ultimatum bargaining with asymmetric outside options. Building on the generalized equity principle formulated by Selten (1978), we derive three different equity rules that can explain 43% of all offers. Our within-subject design further allows us to show that proposers use different equity rules and apply them in a self-serving manner. They tend to follow the rules that suggest the highest payoff for them. Responders exhibit a similar pattern of behavior. Combined, these tendencies lead to high inefficiencies due to frequent rejections.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7625.

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Length: 33 pages
Date of creation: Sep 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7625

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Keywords: Outside Options; Equity Principle; Ultimatum Game;

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