An experimental investigation of ultimatums: Common knowledge, fairness, expectations, and lowest acceptable offers

We designed two laboratory experiments to test popular hypotheses explaining the failure of subgame-perfect equilibrium models to explain behavior in ultimatum games. The first experiment varied information available to respondents. When respondents did not know the amount being divided, offerers offered (and respondents accepted) significantly lower offers than when the respondents knew the amount being divided. The second experiment replicated this result and also showed that people occasionally reject free money (i.e., offers with no strings attached). This evidence does not support earlier explanations for ultimatum anomalies and identifies conditions where subgame-perfect models apply.