Bargaining, Interdependence and the Rationality of Fair Division

We consider two person bargaining games with independent preferences, with and without bilateral incomplete information. We show that, both in the ultimatum game and in the two-stage alternating-offers game, our equilibrium predictions are fully consistent with all robust experimental regularities which falsify the standard game theoretic model: occurrence of disagreements, disadvantageous counteroffers, and outcomes that come close to the equal split of the pie.

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