Fairness in an Embedded Ultimatum Game

Abstract

We embed an ultimatum game in a stylized legal bargaining framework. This changes the framing of the standard ultimatum game in several ways, but also moves the bargaining closer to what is found in some naturally occurring settings. In this context, the ultimatum game is played over the joint surplus which is achieved from settlement as compared to a dispute. In our embedded ultimatum game, the median offer contains only 7% of the joint surplus from settlement. When we replicate the simple ultimatum game, we find that 50% of the joint surplus is contained in the median offer.

Keywords: Ultimatum Game, Experimental Bargaining, Civil Litigation

JEL Classification: C91, K41