More Money or More Certainty? Uncertainty in Alternating Pie-Sharing Experiments

Abstract

We experimentally study a class of pie-sharing games with alternating roles in which the second (and final) stage of interaction follows the rules of a private impunity game, and occurs with a certain probability only if a first-stage agreement is not reached. A large number of participants play various games with known second-stage pie size and probability. We try to account for systematic behaviour econometrically, and interpret our findings from a choice-under-strategic-uncertainty perspective. The analysis reveals a remarkable similarity of behaviour across roles and shows not only that individuals seem to evaluate both stages simultaneously, but also that the probability of reaching an agreement is largely in influenced by strategic uncertainty.

Keywords: game theory, alternating-offer bargaining, impunity, probability distortion, risk, strategic uncertainty

JEL Classification: C33, C34, C78, C91, D80