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

Heike Hennig‐Schmidt
University of Bonn – Laboratory for Experimental Economics

Bernd Irlenbusch
London School of Economics & Political Science – Department of Management; Institute for the Study of Labor (IZA)

Rainer Michael Rilke
University of Cologne – Faculty of Management, Economics and Social Sciences

Gari Walkowitz
University of Cologne; University of Bonn – Laboratory for Experimental Economics

IZA Discussion Paper No. 7625

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.

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

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