Social Motives in Bilateral Bargaining Games: How Power Changes Perceptions of Fairness

Abstract

Power, a fundamental characteristic of social interactions, characterizes one's ability to influence others. Fairness, inherently a type of social preference, impacts distributive decision-making. How does power shape the perceptions of fairness in economic interactions? While previous research finds that power holders tend to take more, it remains unclear whether they are driven by selfish motives to exploit weaker counterparts or act upon the belief that powerful individuals deserve more. With an innovative modified ultimatum game, we analytically and experimentally study how power interplays with fairness consideration to affect bilateral bargaining. We concentrate on behaviors by the responders, to elicit their fairness preferences in response to shifts in power. We find strong evidence that changes in power can modify what is perceived as a fair division in the modified ultimatum game, and thus influence the distributive behaviors and outcomes. However, such an effect only arises when there is common knowledge about the power distribution between the two parties prior to their decision-making. In addition, we find that, while feedback on past decisions and outcomes can help players fine-tune their choices to avoid money left on the table in bargaining, learning from experience is not required for power to take effect.

Keywords: Power, Fairness, Bargaining, Behavioral economics, Ultimatum game