Bargaining with own-preference uncertainty: An experiment

Abstract

While ‘standard’ theory argues that more information typically increases efficiency from exchange, the literature on fairness and bargaining suggests that information may inhibit agreements. However, the literature has typically focussed on information related to the payoffs of the other party. In many real-world interactions, a buyer is uncertain about their own value for a good they are purchasing. We consider a series of modified ultimatum games where we vary buyers’ certainty about their own values. We find that agreements increase when buyers discover their values. However, buyers potentially lose from this discovery if they are uncertain about sellers’ costs. Our results are driven by an increased aversion towards uncertainty when buyers are uncertain about both their own and the seller's payoff. This ‘twofold uncertainty effect’ cannot be rationalised by outcome-based other-regarding preferences and extends current understanding of the influence of uncertainty on perceptions of fair exchange.