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Auctioning the Right to Play Ultimatum Games and the Impact on Equilibrium Selection

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  • Jason Shachat

    () (Wang Yanan Institute for Studies in Economics (WISE) and the MOE Key Laboratory in Econometrics, Xiamen University, Xiamen 361005, Fujian, China)

  • J. Todd Swarthout

    () (Department of Economics, Georgia State University, Atlanta, GA 30303, USA)

Abstract

We auction scarce rights to play the Proposer and Responder positions in ultimatum games. As a control treatment, we randomly allocate these rights and charge exogenous participation fees. These participation fee sequences match the auction price sequence from a session of the original treatment. With endogenous selection via auctions, we find that play converges to a session-specific Nash equilibrium, and auction prices emerge supporting this equilibrium by the principle of forward induction. With random assignment, we find play also converges to a session-specific Nash equilibrium as predicted by the principle of loss avoidance. While Nash equilibria with low offers are observed, the subgame perfect Nash equilibrium never is.

Suggested Citation

  • Jason Shachat & J. Todd Swarthout, 2013. "Auctioning the Right to Play Ultimatum Games and the Impact on Equilibrium Selection," Games, MDPI, Open Access Journal, vol. 4(4), pages 1-16, November.
  • Handle: RePEc:gam:jgames:v:4:y:2013:i:4:p:738-753:d:30826
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    References listed on IDEAS

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    1. repec:eee:eecrev:v:94:y:2017:i:c:p:240-262 is not listed on IDEAS
    2. Drouvelis, Michalis & Sonnemans, Joep, 2017. "The endowment effect in games," European Economic Review, Elsevier, vol. 94(C), pages 240-262.
    3. Choo, Lawrence, 2016. "Market competition for decision rights: An experiment based on the “Hat Puzzle Problem”," MPRA Paper 73408, University Library of Munich, Germany.

    More about this item

    Keywords

    ultimatum bargaining; auction; forward induction; loss avoidance;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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