The predictions of game theory are often contradicted in experiments with simple bargaining games and several investigators. These results have been interpreted as being due to players' concerns for fairness or spite. However, the widely varying designs of the previous experiments and the lack of serious attempts to replicate them make a precise interpretation impossible. This is of particular importance since current experimental evidence suggests that the outcomes of simple games may be very sensitive to the details of experimental procedure. Moreover, it may be impossible to construct a direct test of game theoretic models, even if procedural effects are understood. This is because current models assume a known distribution of attitudes toward fairness and spite among the players. This project conducts experiments that explore the effects of experimental procedures and the influence of fairness and spite. The project develops a theory-based, experimentally tested econometric model that provides estimates of the distribution of fairness and spite in simple bargaining games. Game theory is widely and increasingly used in economics, so more definitive evidence on the validity of game theory in bargaining and new statistical tools for correcting game theoretic models would be a major contribution. The project conducts experiments with dictator and ultimatum games. In these experiments, players divide a given amount of money (the pie) between themselves. An ultimatum game consists of two stages in which the first player makes a single take-it-or-leave-it offer (stage 1) and the second player must either accept or reject (stage 2). Counter-offers are not possible. In a dictator game, the first player makes an offer to which the second player cannot respond. The conventional model predicts that in each game the first mover offers the second player the smallest positive amount possible and, in the ultimatum game, that the second player accepts this offer. It is regularly observed in experiments that substantial fractions of first movers make non-trivial offers, even in the dictator game where offers cannot be rejected. This behavior frequently is attributed to concerns of fairness. However, the results of previous experiments do not provide sufficient information to determine whether players are trying to be fair, whether non-trivial offers are reflections of proposers' beliefs about what their opponents are likely to accept, or whether other motivations influence behavior. Also no two previous studies used the same experimental procedures. The experiments conducted by this project will determine whether the behavior is systematic and predictable.
