NO.1301

Auctioning the right to play ultimatum games and the impact on equilibrium selection

Jason Shachat and J. Todd Swarthout

Abstract
We conduct an experiment in which we auction the scarce rights to play the Proposer and Responder positions in subsequent ultimatum games. As a control treatment, we randomly allocate these rights and then charge exogenous participation fees according to the auction price sequences observed in the auction treatment. With endogenous selection into ultimatum games via auctions, we find that play converges to a session-specific Nash equilibrium and auction prices emerge which support this equilibrium by the principle of forward induction. With random assignment and exogenous participation fees, we find play also converges to a session-specific Nash equilibrium as predicted by the principle of loss avoidance. The Nash equilibrium observed within a session results in low ultimatum game offers, but the subgame perfect Nash equilibrium is never observed.

Creation Date
2013/3/28

Revision Date
2013/3/28

Classification-JEL
C92, C78, D44

Keywords
Ultimatum Bargaining, Auction, Forward Induction

File Attachments
Full Text (2013)