Ultimatum Bargaining Experiments: The State of the Art

Abstract

In the basic ultimatum bargaining game two players, P1 and P2, must divide a pie ( ). P1 proposes a division in which he gets x and P2 gets x. P2 can then accept the division, in which the is split according to P1's proposal, or reject the proposal, in which case neither player gets anything. The current paper reviews empirical research on ultimatum bargaining games. It covers early work starting with Guth et al. (1982), but largely fo- cuses on more recent work (post Roth (1995)). Taken together, the research suggests that P1's behavior in largely in accord with game theoretic income-maximization, but P2's behavior cannot be easily reconciled with standard game-theoretic assumptions. Rather, P2 seems to be driven by a sense of fairness, specifically, a desire to be treated fairly by P1. Both P1 and P2 behavior are in agree- ment with equity theory. The most important conclusion that falls out of this review is that players' motivations, which often are not the ones posited by traditional game theory (and neo-classical eco- nomics, in general), and their perceptions of others' motivations are of fundamental importance in understanding strategic interac- tion. Other ultimatum bargaining findings are reported as well. Future research directions are suggested throughout.