Abstract
THE research reported in this paper arose from a previous experimental study conducted by the authors.' That study involved bargains struck between two subjects who had opposing payoff functions and full information of one another's payoffs. By a flip of a coin one participant could choose a noncooperative outcome, unilaterally: the winner of the coin toss could simply choose an outcome which gave him $12 and left the other subject nothing, whether or not the loser agreed. However, if the two subjects cooperated, they could obtain from the experimenter $14, which could be split between the subjects in any mutually agreed-on manner. Cooperative game theory predicts that the subjects will cooperate and divide the rewards $13 to $1 (the Nash bargaining solution: an even division of the $2 gain from trade). Under no circumstances should the winner of the coin flip settle for less than $12, according to game
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