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date: 22 February 2020

Abstract and Keywords

This article discusses the alternating-offer games, the paradigm that was used to identify other-regarding preferences in bargaining models. It hypothesizes that the success or failure of predicting behavior using game theoretical reasoning can be explained by three principles. It also describes a number of puzzling findings in alternating-offer bargaining that show that, in some situations, subgame perfect equilibrium (SPE) predicts well, even when the predictions are far from an equal split, whereas in other situations the predictions are highly inaccurate. Demand for fairness is subject to cost-benefit evaluation and is, in this sense, deliberate and well thought out. The three principles help to explain why SPE predicts behavior well in some experiments whereas in others it fails. Ariel Rubinstein interestingly opined that (bargaining) theory should not even be presumed to be about predicting behavior. Gamesmanship and ideas of fairness are intertwined and inseparable in human bargaining behavior.

Keywords: alternating-offer games, alternating-offer bargaining, game theoretical reasoning, subgame perfect equilibrium, fairness, gamesmanship

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