The Take-it-or-Leave-it Rule and Proposer's Bargaining Power
The take-it-or-leave-it structure of the ultimatum game grants the Proposer significant bargaining power relative to the Responder. This institutional advantage is a primary reason the Proposer usually receives more than half of the total amount.
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Introduction to Microeconomics Course
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CORE Econ
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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A two-person game is structured as follows: Player 1 (the Proposer) is given a sum of money and must offer a portion of it to Player 2 (the Responder). The Responder can then either accept the offer, in which case the money is split as proposed, or reject it, in which case both players receive nothing. Arrange the following events of a single round of this game in the correct chronological order.
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In a two-person negotiation over a sum of money, one person (the Proposer) makes a single 'take-it-or-leave-it' offer on how to split the sum. The second person (the Responder) can either accept the offer, and the money is split as proposed, or reject it, in which case neither person receives anything. Now, consider a change to this structure: there is still only one Proposer, but there are now two Responders. The Proposer makes an offer, and the first Responder to accept it gets the proposed share. Based on an analysis of the players' incentives, how does this change most likely affect the balance of bargaining power?
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In a one-time negotiation where one person proposes a split of $100 and the other can only accept or reject it (with rejection meaning both get nothing), the proposer's bargaining power is absolute because the responder will logically accept any offer greater than zero.
Learn After
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