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Ultimata bargaining: generosity without social motives

Breitmoser, Yves and Tan, Jonathan H.W. (2011): Ultimata bargaining: generosity without social motives.

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Abstract

We show and explain how generosity beyond that explainable by social preferences can manifest in bargaining. We analyze an ultimata game with two parties vying to coalesce with a randomly chosen proposer. They simultaneously demand shares of the surplus. The proposer must then make an offer that meets at least one demand, or else the game either continues with a new round or breaks down with all earning zero. Self-interest, altruism, and inequity aversion univocally predict miniscule demands due to inter-party competition; proposers thus obtain the lion's share. We experimentally observe that proposers coalesce with the less demanding party by strategically matching demands, like ultimatum bargaining, but also give non-strategically to the other party, like dictator giving. The observations are incompatible with concave utilities, as implied by social preferences, but are compatible with reference dependent preferences.

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