Information, Strategic Behavior, and Fairness in Ultimatum Bargaining: An Experimental Study

Area of Science:

• Behavioral Economics
• Game Theory
• Experimental Economics

Background:

• Ultimatum bargaining games typically involve two players: a proposer and a responder.
• The presence of an inactive third player introduces a novel dynamic to the standard bargaining model.
• Information asymmetry regarding the proposed allocation can influence bargaining outcomes.

Purpose of the Study:

• To investigate how information conditions affect proposer behavior in a three-player ultimatum game.
• To analyze the impact of message content on the fairness of proposed resource allocation.
• To determine the relationship between information revealed and proposer's demand.

Main Methods:

• Experimental design simulating a three-player ultimatum bargaining scenario (Proposer X, Responder Y, Inactive Z).
• Proposer X suggests an allocation (x, y, z) of a divisible resource ('cake').
• Three distinct message conditions were employed: full proposal (m=(x, y, z)), responder's share (m=y), and third party's share (m=z), with information being common knowledge.

Main Results:

• Proposer's offers were significantly influenced by the information condition.
• A decrease in message information content correlated with an increase in the proposer's demand (x).
• When only the third party's share was revealed (m=z), the modal proposal allocated nearly the entire resource to the proposer (X).

Conclusions:

• Information revelation plays a critical role in shaping fairness perceptions and bargaining outcomes.
• Proposers exploit information asymmetry to secure larger shares of the resource.
• Responder (Y) received approximately one-third of the resource on average in conditions with more information.