Ultimatums in two-person bargaining with one-sided uncertainty: Demand games

Abstract The demand game is a noncooperative two-person ultimatum game with one-sided uncertainty in which the Sender knows the value of the shared surplus (pie) but the Receiver only knows its probability distribution (Mitzkewitz and Nagel, 1993). We study experimentally the effects of systematic changes in the variability of the pie distribution on the Sender's proposals and Receiver's (binary) responses. In accordance with a behavioral theory that we propose, we find that 1. (i) the Sender's proportional share of the pie increases as the Receiver's uncertainty about the pie increases, and 2. (ii) for a given pie distribution, the Sender's proportional share decreases as the actual pie size increases.