When Knowledge Isn't Power: Asymmetric Information, Probabilistic Deceit Detection and Threats in Ultimatum Bargaining

47 Pages Posted: 24 Aug 2015 Last revised: 2 Jul 2016

See all articles by Mark Ferreira

Mark Ferreira

Connecticut College

David Chavanne

Connecticut College - Economics Department

Date Written: June 3, 2016

Abstract

We find that probabilistic deceit detection and cheap-talk threats enhance the fairness and honesty of a bargainer who possesses advantageous information and has the opportunity to be deceitful. In our ultimatum game, only proposers know the size of the pie. Proposers, therefore, have the option to understate the pie size and make their offer appear fairer than it really is. The separate and interactive effects of probabilistic deceit detection and cheap-talk threats have implications for how exchange can be facilitated by mechanisms that detect deceit and/or enable buyer communication in markets where sellers have informational advantages.

Keywords: asymmetric information; deception; ultimatum games; cheap talk; threats

JEL Classification: C70, C91, D82

Suggested Citation

Ferreira, Mark and Chavanne, David, When Knowledge Isn't Power: Asymmetric Information, Probabilistic Deceit Detection and Threats in Ultimatum Bargaining (June 3, 2016). Available at SSRN: https://ssrn.com/abstract=2649621 or http://dx.doi.org/10.2139/ssrn.2649621

Mark Ferreira

Connecticut College ( email )

New London, CT 06320
United States

David Chavanne (Contact Author)

Connecticut College - Economics Department ( email )

New London, CT 06320
United States

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