Abstract
We study ultimatum and dictator environments with one-way, unenforceable pre-play communication from the proposer to the recipient, semantically framed as a promise. After observing this promise regarding how much the proposer will offer if selected, in our treatment conditions, recipients choose whether or not to select a particular proposer. We find that offers can increase in the ultimatum game both with non-competitive selection with a single potential proposer, and more so with competition, where the recipient chooses one of two potential proposers, as compared to the no selection baseline. Furthermore, the offer is rejected with higher probability if the promisemade by the selected proposer is higher than the eventual offer. Our dictator environment does not give the power to reject offers, thus selection power carries no benefits in the dictator game. Finally, independent of the game institution or proposer selection mechanism, promises provide credible signals for offers.
Highlights
Analysis of bargaining usually proceeds on the assumption that a partnership has been formed.Sometimes, agents can choose whether to enter into a partnership, or whom to select as partner
We found that promises were not credible in the treatment conditions, higher promises were not necessarily selected with higher probability, and that selection power did not lead to larger offers compared to the baseline
Our results mainly focus on the ultimatum game, using the dictator conditions as controls
Summary
Analysis of bargaining usually proceeds on the assumption that a partnership has been formed. Given that promises are not binding, the subgame perfect equilibrium outcome is invariant across the conditions and is the same as in the standard ultimatum game without communication: the (selected) proposer offers a minimal amount, and the recipient accepts This leads to the hypothesis that introduction of selection power should make no difference to offers. The award of the right to propose arises through a decision on the part of the recipient, which she bases on communication received This may lead her to use prior communication as a factor when deciding acceptance or rejection of the offer, which in turn can trigger better selection, and upward selection pressure on promises, especially in the competitive setting.
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