Limited power of outside options: New evidence from ultimatum games

We conduct an experiment to examine how responders’ outside options ($R_O$, out of 100) influence their bargaining power in modified ultimatum games, where $R_O$ is systematically varied while proposers’ outside options remain fixed at zero. Using both between-subject (BSD) and within-subject (WSD) designs, we uncover two key findings that provide new insights about outside options in ultimatum bargaining. First, in the BSD treatments, proposers’ offers do not increase until $R_O$ is sufficiently large (e.g., $R_O=40$) and may even decrease when $R_O$ is very small (e.g., $R_O=5$). Second, in the WSD treatment, while proposers’ offers increase monotonically with $R_O$, the offer levels are significantly lower than those in the BSD treatments when $R_O$ is small (e.g., $R_O<20$). These findings demonstrate that outside options are not always a bargaining advantage, highlighting the complex and context-dependent role of outside options in bargaining dynamics.