Limited negotiation in embedded ultimatum games

This study expands on previous work done on signaling/screening take-it-or-leave-it asymmetric information games where excess disputes occur. Two players engage in an embedded ultimatum game in a stylized legal framework of plaintiff versus defendant. The plaintiff has either a low or a high claim on the uninformed defendant. There is a computerized version of the embedded ultimatum game to test replicability of literature results. Two novel variations are introduced. In the first variation multiple sequential offers can be made by the proposer during a single period of the embedded game and in the second real time offers and counteroffers can be made by both the plaintiff and the defendant. The effect of adding those negotiation mechanisms is studied. Overall replication results are consistent with theory. Subjects make use of the multiple offer mechanism. Multiple offers facilitate higher rates of settlement especially in high claim plaintiffs. When a high claim case settles the defendant earns most of the gains from settlement. The bilateral multiple offer mechanism increases settlement between bluffing low claim plaintiff and defendant by giving the plaintiff an opportunity to accept the defendant’s offer