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Limited power of outside options: New evidence from ultimatum games

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  • He, Qingrong
  • Lee, Dongwoo
  • Shi, Qichao

Abstract

We conduct an experiment to examine how responders’ outside options (RO, out of 100) influence their bargaining power in modified ultimatum games, where RO is systematically varied while proposers’ outside options remain fixed at zero. Using both between-subject (BSD) and within-subject (WSD) designs, we uncover two key findings that provide new insights about outside options in ultimatum bargaining. First, in the BSD treatments, proposers’ offers do not increase until RO is sufficiently large (e.g., RO=40) and may even decrease when RO is very small (e.g., RO=5). Second, in the WSD treatment, while proposers’ offers increase monotonically with RO, the offer levels are significantly lower than those in the BSD treatments when RO is small (e.g., RO<20). These findings demonstrate that outside options are not always a bargaining advantage, highlighting the complex and context-dependent role of outside options in bargaining dynamics.

Suggested Citation

  • He, Qingrong & Lee, Dongwoo & Shi, Qichao, 2025. "Limited power of outside options: New evidence from ultimatum games," Economics Letters, Elsevier, vol. 255(C).
    • Handle: RePEc:eee:ecolet:v:255:y:2025:i:c:s016517652500343x
    DOI: 10.1016/j.econlet.2025.112506
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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