Bargaining, Fairness and Conflict

A central issue in behavioral economics is the role of fairness, and whether it is hard-wired or acquired as a result of self-interested considerations. Binmore (2020) has recently argued that fairness does not always occur, and when it does, it is caused by self-interest. The ultimatum game is well known for the sharp divergence of experimental data from theoretical predictions based on self-interest. Proposers frequently offer ‘fair’ shares of a fixed “pie” of potential earnings, and unfair offers are often rejected, which results in zero earnings for both bargainers. Slight modifications of the ultimatum game, however, can add a more realistic context for some applications, and the resulting gamesman-like behavior can yield results closer to theoretical predictions. This paper reports an experiment based on a modified ultimatum game in which rejection results in a costly conflict with a stochastic outcome. We observe gamesman-like offer behavior, especially after role reversal and learning. Conflict adds an element of competition and seems to play a role in teaching subjects what offers are appropriate – often moving demands away from fair divisions towards the game-theoretic predictions.publishedVersionPeer reviewe

Some Surprising Properties of Power Indices

A troubling aspect about power indices is how the values assigned to players can depend upon the index. As shown, the problem is more severe; different indices can generate radically different rankings; e.g., a 15-player game exists with over a trillion different strict power index rankings of the players. It is shown that certain indices always share the same ranking, but this assertion depends on the number of players; e.g., the Shapley and Banzhaf rankings agree with three players, but with more players they can even have opposite rankings. It is also shown how changes in certain assumptions affect the outcomes. This includes demonstrating how the rankings change when players drop out of a game.

An Experimental Study of Strategic Voting and Accuracy of Verdicts with Sequential and Simultaneous Voting

In a model of simultaneous voting, Feddersen and Pesendorfer (1998) consider the possibility that jurors vote strategically, rather than sincerely reflecting their individual information. This results in the counterintuitive result that a jury is more likely to convict the innocent under a unanimity rule than under majority rule. Dekel and Piccione (2000) show that those unintuitive predictions also hold with sequential voting. In this paper, we report paired experiments with sequential and simultaneous voting under unanimity and majority rule. Observed behavior varies significantly depending on whether juries vote simultaneously or in sequence. We also find evidence that subjects use information inferred from prior votes in making their sequential voting decisions, but that information implied by being pivotal in simultaneous votes does not seem to be reliably processed.publishedVersionPeer reviewe

Balance of Power and the Propensity of Conflict

We study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict. Our experimental results suggest: In a simple bargaining game with an exogenous mediation proposal, the likelihood of conflict is independent of the balance of power. If bargaining involves endogenous demand choices, however, the likelihood of conflict is higher if power is more imbalanced. Even though endogenous bargaining outcomes reflect the players' unequal fighting strengths, strategic uncertainty causes outcomes to be most efficient when power is balanced. In turn, the importance of exogenous mediation proposals depends on the balance of power

Some Surprising Properties Of Power Indices

While it is troubling when power index values change with the index, the problem is more severe; different indices can generate radically di#erent rankings; e.g., a 15-player game exists with over a trillion different strict index rankings of the players. In contrast, for each number of players certain indices always share the same ranking; e.g., the Shapley and Banzhaf rankings agree with three players, but they can even have opposite rankings with more players. It is shown how index outcomes can be sensitive to assumptions and when players leave a game

Honor among thieves: Cooperation as a strategic response to functional unpleasantness

The assumption of self-interested behavior makes it difficult to explain cooperation among strangers. Economics experiments and game-theoretic analyses suggest that cooperation can arise from a willingness to punish noncooperative behavior, even at personal cost. Such behavior is often based on the notion that people who punish noncooperators value cooperation in itself. We show, by contrast, that people who like to cheat but also punish other cheaters - people who are Unpleasant, but who also have a strategic desire to avoid being punished themselves - can form the basis for widespread, even complete cooperation in society. Ultimately, such Unpleasant but strategic types can create conditions where all cooperate even though everyone would prefer to cheat.Evolutionary analysis Cheaters Cooperation

Payment Systems, Supplier-Induced Demand, and Service Quality in Credence Goods: Results from a Laboratory Experiment

This experiment examines the relationship between payment systems and the quality and quantity of services provided in credence goods markets. By using a real-effort task to stimulate the decision making of service providers, the study finds that payment systems do indeed have an impact on service provision. Specifically, providers in fee-for-service systems over-provide, while those in salary systems under-provide services. Additionally, there is a lack of alignment between the services provided under fee-for-service and the actual needs of customers, resulting in a substantial loss of customer benefits under fee-for-service in comparison to under salary. The study also finds that providers in fee-for-service systems perform more faulty tasks than those in salary, indicating that they may prioritize quantity over quality in their services. As for insurance, the results of this study show no significant effect of insurance on the number of services provided; however, customers without insurance received significantly more faulty tasks. Based on these results, the study concludes that payment systems play an important role in determining the quality and quantity of services provided in credence goods markets. Overall, this study highlights the need for a better alignment between customer needs and services provided under fee-for-service systems