Fairness in Ultimatum Bargaining with Outside Options: Experimental Evidence

Results of ultimatum bargaining experiments show a persistence of behavior that deviates from Nash equilibrium predictions. In addition to strategic considerations, many have attributed these results to a taste for fairness on the part of subjects. We investigate this concept by introducing an outside option for proposers in the game. We find that the outcome of the experiment varies systematically with the size of the outside option. Our interpretation of these results is that subjects' notion of what is fair depends on the decision environment. Results are consistent with classical axiomatic bargaining solutions for the game situation: outside options change the disagreement outcome, and subjects essentially divide evenly the dividend associated with reaching agreement.