Implementing equal division with an ultimatum threat

Date
2014
Authors
Cetemen, E. D.
Karagözoğlu, E.
Editor(s)
Advisor
Supervisor
Co-Advisor
Co-Supervisor
Instructor
Source Title
Theory and Decision
Print ISSN
0040-5833
Electronic ISSN
1573-7187
Publisher
Springer
Volume
77
Issue
2
Pages
223 - 236
Language
English
Journal Title
Journal ISSN
Volume Title
Series
Abstract

We modify the payment rule of the standard divide the dollar (DD) game by introducing a second stage and thereby resolve the multiplicity problem and implement equal division of the dollar in equilibrium. In the standard DD game, if the sum of players' demands is less than or equal to a dollar, each player receives what he demanded; if the sum of demands is greater than a dollar, all players receive zero. We modify this second part, which involves a harsh punishment. In the modified game , if the demands are incompatible, then players have one more chance. In particular, they play an ultimatum game to avoid the excess. In the two-player version of this game, there is a unique subgame perfect Nash equilibrium in which players demand (and receive) an equal share of the dollar. We also provide an -player extension of our mechanism. Finally, the mechanism we propose eliminates not only all pure strategy equilibria involving unequal divisions of the dollar, but also all equilibria where players mix over different demands in the first stage.

Course
Other identifiers
Book Title
Citation
Published Version (Please cite this version)