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Bargaining Theory and Fairness
A Theoretical and Experimental Approach Considering Freedom of Choice and the Crowding-out of Intrinsic Motivation
Volkswirtschaftliche Schriften, Vol. 527
(2002)
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Abstract
Two new bargaining games, called "Freedom to Punish (FTP)" and "Right and Choice to Punish (RAP)", are developed, analyzed and tested by means of an experimental implementation. Hypotheses about behavior are developed, discussed and tested. The central hypotheses are aimed at the importance of freedom of choice, on the difference between the FTP game and the RAP game, and on the crowding-out of intrinsic motivation. As might have been expected, fairness plays a role in both games, represented by the frequent appearances of equal splits as well as by the frequent rejections of unfair offers.In addition to that, fairness was crowded out by the new Institution of a veto power decision, confirming the importance of the institutional setting for behavior. Contrary to the few veto power sales in the RAP game, an amazingly high number of receivers refrained from veto power in the FTP game. This significant difference has clearly been attributed to the different information conditions and the existence of a bonus. This bonus can be interpreted in terms of freedom of choice, and exploits a value for the freedom to choose for the first time in experimental economics.
Table of Contents
| Section Title | Page | Action | Price |
|---|---|---|---|
| List of Contents | 5 | ||
| List of Figures | 9 | ||
| List of Abbreviations | 12 | ||
| List of Variables and Design Parameters | 13 | ||
| A. Introduction | 15 | ||
| I. Motivation and Research Objectives | 15 | ||
| II. Overview and Contents | 17 | ||
| B. Research on Bargaining Games | 19 | ||
| I. Bargaining Games and Related Games | 20 | ||
| 1. The Ultimatum Game | 20 | ||
| 2. The Dictator Game | 20 | ||
| 3. The Impunity Game | 21 | ||
| 4. The Cardinal Impunity Game | 21 | ||
| 5. Cardinal Ultimatum Games | 22 | ||
| 6. The Best Shot Game and the Best Shot Mini Game | 23 | ||
| 7. An Auction Market Game | 23 | ||
| 8. Prisoner’s Dilemma | 24 | ||
| II. Comparisons Between Related Types of Games | 24 | ||
| 1. Experimental Results on Ultimatum and Dictator Bargaining | 26 | ||
| 2. Basic and Advanced Designs for Ultimatum Experiments | 27 | ||
| 3. Experiments with Dictator Games and Other Games | 31 | ||
| III. A Summary of Research Results | 36 | ||
| C. Fairness and Intrinsic Motivation | 41 | ||
| I. The Concept of Intrinsic Motivation | 41 | ||
| II. Experimental Approaches Towards Intrinsic Motivation | 42 | ||
| III. Aspects of Fairness | 42 | ||
| IV. Referring to a Fairness Norm | 44 | ||
| V. Relevant Factors for a Social Norm of Fairness | 48 | ||
| 1. The Level of Competitiveness | 48 | ||
| 2. The Level of Social Distance | 50 | ||
| 3. Annoyance as a Key Factor | 50 | ||
| 4. Determinants for a Level of Annoyance | 52 | ||
| VI. Another Implementation of Fairness | 53 | ||
| VII. Putting the Factors Together | 55 | ||
| D. Freedom of Choice | 58 | ||
| I. The Basic Concept | 58 | ||
| 1. Instrumental and Intrinsic Importance | 58 | ||
| 2. Negative and Positive Freedom | 59 | ||
| 3. Alternative Spaces, Functionings, and Capabilities | 60 | ||
| 4. The Famine Example | 60 | ||
| II. Axiomatic Modeling of Freedom of Choice | 63 | ||
| III. Modeling Freedom of Choice with a Simple Game | 63 | ||
| IV. A Summary on Freedom of Choice | 64 | ||
| E. The Two Games and Their Experimental Realization | 66 | ||
| I. Freedom to Punish | 68 | ||
| 1. The Structure of the Game | 68 | ||
| 2. The Game Theoretic Solution of the FTP Game | 70 | ||
| II. Right and Choice to Punish | 71 | ||
| 1. The Structure of the Game | 72 | ||
| 2. The Game Theoretic Solution of the RAP Game | 73 | ||
| III. Differences and Similarities Between the Two Games | 74 | ||
| IV. The Experimental Realization | 74 | ||
| V. The Experimental Procedure | 76 | ||
| F. Experimental Design for the FTP Game | 77 | ||
| I. Design Approach for the Experiment | 78 | ||
| 1. Treatment Variables | 79 | ||
| 2. Designs with a Low Proportional Bonus: A and Β | 79 | ||
| 3. The Design Without a Bonus: C | 80 | ||
| 4. The Design with a Low Constant Bonus: D | 81 | ||
| 5. The Design with a High Constant Bonus: E | 82 | ||
| 6. Designs with a Constant Price: F, G and Η | 82 | ||
| II. Alternative Designs | 83 | ||
| G. Experimental Results for the FTP Game | 85 | ||
| I. An Overview of the Decisions in the FTP Game | 85 | ||
| 1. The Veto Power Decisions | 85 | ||
| 2. The Proposals | 87 | ||
| 3. The Acceptance Decisions | 93 | ||
| 4. Payoffs and Efficiency | 95 | ||
| II. Design Background and Hypothesis Approach | 96 | ||
| III. Statistical Analysis for the FTP Game | 97 | ||
| 1. The Veto Power Decisions | 97 | ||
| a) General Tendencies for the Veto Power Decisions | 98 | ||
| b) Analysis of the Veto Power Decisions | 98 | ||
| c) Graphical Illustration of the Veto Power Decisions | 104 | ||
| 2. The Proposals | 105 | ||
| a) General Tendencies for the Demand Decisions | 105 | ||
| b) Analysis of the Demand Decisions | 106 | ||
| c) Graphical Illustration of the Demand Decisions | 110 | ||
| 3. The Acceptance Decisions | 111 | ||
| IV. General Results of the FTP Game | 113 | ||
| 1. Interpretation of the Behavior Towards Freedom of Choice | 113 | ||
| 2. Overall Outcomes of the FTP Game | 114 | ||
| H. Experimental Design for the RAP Game | 116 | ||
| I. Design Approach for the Experiment | 117 | ||
| 1. Treatment Variables | 118 | ||
| 2. Design I with a Small Bonus, a Fair and a Greedy Distribution | 119 | ||
| 3. Design II with a Small Bonus, a Greedy and a Very Greedy Distribution | 121 | ||
| 4. Design III with a High Bonus, a Fair and a Greedy Distribution | 122 | ||
| 5. Design IV with a High Bonus, a Greedy and a Very Greedy Distribution | 123 | ||
| 6. Playing a Subgame | 124 | ||
| II. Alternative Designs | 125 | ||
| I. Experimental Results for the RAP Game | 127 | ||
| I. An Overview of the Decisions in the RAP Game | 127 | ||
| 1. The Veto Power Decisions | 127 | ||
| 2. The Proposals | 129 | ||
| 3. The Acceptance Decisions | 133 | ||
| 4. The Subgames | 135 | ||
| 5. Behavior Types for Proposers and Receivers | 136 | ||
| 6. A Strategy Tournament | 139 | ||
| 7. Payoffs and Efficiency | 144 | ||
| II. Design Background and Hypothesis Approach | 146 | ||
| III. Statistical Analysis for the RAP Game | 147 | ||
| 1. Differences Between the FTP Game and the RAP Game | 148 | ||
| 2. The Veto Power Decisions | 149 | ||
| 3. The Proposals | 151 | ||
| 4. The Acceptance Decisions | 158 | ||
| 5. The Subgames | 159 | ||
| IV. General Results of the RAP Game | 161 | ||
| 1. Interpretation of the Behavior Towards a Crowding-Out | 161 | ||
| 2. Overall Outcomes of the RAP Game | 162 | ||
| J. Summary | 164 | ||
| Bibliography | 166 | ||
| Subject Index | 174 |