Influence of Game Rules (Structural Power) on Bargaining Outcomes
The rules of a strategic interaction, which establish the players' structural power, are a key determinant of the outcome and their relative bargaining power. Economic experiments demonstrate this by altering rules under controlled conditions. Examples include modifying the ultimatum game by adding responder competition, removing the responder's veto power (as in the dictator game), or changing the responder's payoff for a rejected offer. Each of these changes significantly shifts the distribution of bargaining power and the final outcome.
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Ch.5 The rules of the game: Who gets what and why - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Influence of Game Rules (Structural Power) on Bargaining Outcomes
Interpreting Experimental Economic Data
An economist develops a new theory about how individuals decide whether to contribute to a shared resource. What is the primary reason for using a controlled laboratory experiment to investigate this theory?
Designing an Experiment to Test Fairness
Match each key feature of a controlled economic experiment with its primary purpose in understanding human decision-making.
A researcher conducts an experiment where participants are given $10 and can anonymously give any amount to a stranger. Most participants give some money away. A critic argues this result is meaningless for understanding real-world economics because the experiment takes place in an artificial lab, not in a real market. The critic's argument is valid because the primary goal of such economic experiments is to perfectly replicate naturally occurring situations.
Analyzing Experimental Results to Understand Behavior
Analyzing the Impact of Rule Changes in an Economic Experiment
Evaluating an Experimental Design
In a controlled experiment, two anonymous participants are assigned roles. Player 1 is given $20 and must propose how to split it with Player 2. Player 2 can either accept the proposed split, in which case both players are paid accordingly, or reject it, in which case both players receive nothing. The most common proposal from Player 1 is a $10/$10 split, and proposals where Player 1 offers less than $5 are almost always rejected by Player 2. What is the most logical conclusion that can be drawn from these results?
An economist wants to study how small-scale farmers decide whether to adopt a new, more expensive but potentially more profitable type of seed. They are considering two research methods:
- Method A: A controlled experiment in a university computer lab where farmers are given information and a sum of money, and they play a game that simulates the risks and rewards of choosing the new seed versus their traditional seed.
- Method B: A field study where a random group of farmers in a village is offered a discount on the new seed, and their adoption rate is compared to another random group in the same village that was not offered the discount.
Which statement best evaluates the primary trade-off between these two methods for understanding the farmers' decision-making?
Methodology of Controlled Economic Experiments: Isolating Variables
Learn After
Observed Ultimatum Game Outcomes vs. the Homo Economicus Model
Comparison of Ultimatum Game Responses: Kenyan Farmers vs. US Students
Responder Competition Lowers Rejection Rates Due to Uncertainty
Dictator Game
Power Assignment in Experimental Games vs. Real Economies
Government Income Support Increases Employee Bargaining Power
Consumer Structural Power from Competition
Consider two distinct one-time bargaining situations involving a Proposer and a Responder who must agree on how to split $100.
Situation 1: The Proposer makes a take-it-or-leave-it offer. If the Responder accepts, they split the money as proposed. If the Responder rejects, both get nothing.
Situation 2: The Proposer dictates the split, and the Responder automatically receives their share with no ability to reject the offer.
How does the change in rules from Situation 1 to Situation 2 affect the relative bargaining power of the Proposer and the likely outcome?
Impact of Competition on Bargaining Outcomes
Consider three different one-time bargaining scenarios over a sum of $100. Arrange these scenarios in order from the one that gives the Proposer the MOST bargaining power to the one that gives the Proposer the LEAST bargaining power.
Analyzing the Impact of a Modified Rejection Payoff
Evaluating Rule Structures for Equitable Bargaining
In a strategic interaction where one person (the Proposer) offers to split a sum of money with another person (the Responder), match each modification to the rules with its most likely effect on the balance of bargaining power.
True or False: Consider a one-time bargaining situation where a Proposer offers a split of $100 to a Responder. If the rule is changed from 'a rejection means both players get $0' to 'a rejection means the Responder gets $10 and the Proposer gets $0', this change in rules decreases the Responder's bargaining power.
In a one-time bargaining interaction, a Proposer offers to split $100 with a single Responder. If the Responder rejects the offer, both individuals receive nothing. If the rules are changed so that the Proposer makes an offer to two Responders simultaneously, and the split is finalized with the first Responder to accept, the introduction of this competition is expected to cause the average offer amount accepted by a Responder to ________.
Analyzing the Impact of an Outside Option on Bargaining Power
A research institute is studying how different rule structures affect negotiation outcomes. They set up four different scenarios for a Proposer to split a $100 prize with a Responder. In which of the following scenarios does the Proposer have the most structural power, making a highly unequal split (e.g., the Proposer keeping almost everything) the most probable outcome?
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Impact of a Responder's Outside Option on Ultimatum Game Outcomes