Self-Serving Use of Equity Rules in Bargaining with Asymmetric Outside Options

33 Pages Posted: 5 Oct 2013

See all articles by Heike Hennig‐Schmidt

Heike Hennig‐Schmidt

University of Bonn - Laboratory for Experimental Economics

Bernd Irlenbusch

London School of Economics & Political Science - Department of Management; IZA Institute of Labor Economics

Rainer Michael Rilke

WHU - Otto Beisheim School of Management

Gari Walkowitz

Technische Universität München (TUM) - School of Governance - Hochschule für Politik

Abstract

We experimentally investigate multiple notions of equity in ultimatum bargaining with asymmetric outside options. Building on the generalized equity principle formulated by Selten (1978), we derive three different equity rules that can explain 43% of all offers. Our within-subject design further allows us to show that proposers use different equity rules and apply them in a self-serving manner. They tend to follow the rules that suggest the highest payoff for them. Responders exhibit a similar pattern of behavior. Combined, these tendencies lead to high inefficiencies due to frequent rejections.

Keywords: Outside Options, Equity Principle, Ultimatum Game

JEL Classification: C71, C72, C78, C91, D63

Suggested Citation

Henning-Schmidt, Heike and Irlenbusch, Bernd and Rilke, Rainer Michael and Walkowitz, Gari, Self-Serving Use of Equity Rules in Bargaining with Asymmetric Outside Options. IZA Discussion Paper No. 7625, Available at SSRN: https://ssrn.com/abstract=2336422

Heike Henning-Schmidt (Contact Author)

University of Bonn - Laboratory for Experimental Economics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

Bernd Irlenbusch

London School of Economics & Political Science - Department of Management ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)20 7955 7840 (Phone)
+44 (0)20 7955 6887 (Fax)

HOME PAGE: http://www.lse.ac.uk/collections/management/

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Rainer Michael Rilke

WHU - Otto Beisheim School of Management ( email )

Burgplatz 2
Vallendar, 56179
Germany

Gari Walkowitz

Technische Universität München (TUM) - School of Governance - Hochschule für Politik ( email )

Richard-Wagner-Str.1
Munich, 80333
Germany

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