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Bargaining, Interdependence, and the Rationality of Fair Division

  • Giuseppe Lopomo
  • Efe A. Ok

We consider two-person bargaining games with interdependent preferences and bilateral incomplete information. We show that in both the ultimatum game and the two-stage alternating-offers game, our equilibrium predictions are consistent with a number of robust experimental regularities that falsify the standard game theoretic model: occurrence of disagreements, disadvantageous counteroffers, and outcomes that come close to the equal split of the pie. In the context of infinite-horizon bargaining, the implications of the model pertaining to fair outcomes is even stronger. In particular, the Coase property in our case generates "almost" 50-50 splits of the pie, almost immediately. The present approach thus provides a positive theory for the frequently encountered phenomenon of the 50-50 division of the gains from trade. Copyright 2001 by the RAND Corporation.

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Paper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 98-13.

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Date of creation: 1998
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Handle: RePEc:ste:nystbu:98-13
Contact details of provider: Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/

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  1. Bolton, Gary E, 1991. "A Comparative Model of Bargaining: Theory and Evidence," American Economic Review, American Economic Association, vol. 81(5), pages 1096-136, December.
  2. Andreoni, J. & Miller, J.H., 1996. "Giving According to GARP: An Experimental Study of Rationality and Altruism," Working papers 9601, Wisconsin Madison - Social Systems.
  3. Ellingsen, Tore, 1997. "The Evolution of Bargaining Behavior," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 581-602, May.
  4. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
  5. Herrero, Maria Jose, 1989. "The nash program: Non-convex bargaining problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 266-277, December.
  6. Kirchsteiger, Georg, 1994. "The role of envy in ultimatum games," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 373-389, December.
  7. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
  8. Colin F. Camerer & Richard H. Thaler, 1995. "Anomalies: Ultimatums, Dictators and Manners," Journal of Economic Perspectives, American Economic Association, vol. 9(2), pages 209-219, Spring.
  9. Cho, In-Koo, 1990. "Uncertainty and Delay in Bargaining," Review of Economic Studies, Wiley Blackwell, vol. 57(4), pages 575-95, October.
  10. Kockesen, Levent & Ok, Efe A., 1997. "Negatively Interdependent Preferences," Working Papers 97-02, C.V. Starr Center for Applied Economics, New York University.
  11. Bolton Gary E. & Zwick Rami, 1995. "Anonymity versus Punishment in Ultimatum Bargaining," Games and Economic Behavior, Elsevier, vol. 10(1), pages 95-121, July.
  12. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
  13. Matthew Rabin., 1997. "Psychology and Economics," Economics Working Papers 97-251, University of California at Berkeley.
  14. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
  15. Kennan, John & Wilson, Robert, 1993. "Bargaining with Private Information," Journal of Economic Literature, American Economic Association, vol. 31(1), pages 45-104, March.
  16. Ochs, Jack & Roth, Alvin E, 1989. "An Experimental Study of Sequential Bargaining," American Economic Review, American Economic Association, vol. 79(3), pages 355-84, June.
  17. Drew Fudenberg & David K. Levine & Jean Tirole, 1985. "Infinite-Horizon Models of Bargaining with One-Sided Incomplete Information," Levine's Working Paper Archive 1098, David K. Levine.
  18. Forsythe Robert & Horowitz Joel L. & Savin N. E. & Sefton Martin, 1994. "Fairness in Simple Bargaining Experiments," Games and Economic Behavior, Elsevier, vol. 6(3), pages 347-369, May.
  19. Gul, Faruk & Sonnenschein, Hugo, 1988. "On Delay in Bargaining with One-Sided Uncertainty," Econometrica, Econometric Society, vol. 56(3), pages 601-11, May.
  20. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  21. Cho, In-Koo & Kreps, David M, 1987. "Signaling Games and Stable Equilibria," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 179-221, May.
  22. Bolton, Gary E., 1997. "The rationality of splitting equally," Journal of Economic Behavior & Organization, Elsevier, vol. 32(3), pages 365-381, March.
  23. Daughety, A.F., 1993. "Socially-Influenced Choice : Equity Considerations in Models of Consumer Choice and Games," Working Papers 93-01, University of Iowa, Department of Economics.
  24. Faruk Gul & Hugo Sonnenschein & Robert Wilson, 2010. "Foundations of Dynamic Monopoly and the Coase Conjecture," Levine's Working Paper Archive 232, David K. Levine.
  25. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  26. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
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