Abstract
This paper examines offers and responses in an ultimatum bargaining experiment that includes a third, non-decision-making subject, or hostage, whose payoff is affected by the bargaining outcome. The payoff to the hostage when the offer is accepted is separate from the bargaining pie and varies from one-third to the entire pie ($5, $10, or $15). All parties, including the hostage, receive no payoff for a rejection. Our results demonstrate that while responders may behave altruistically towards a third, non-decision-making player, they are more concerned with their payoff relative to that of the proposer. We find that responders are more likely to reject an offer if the offer leaves them with an inequitable payoff relative to the hostage. We also find that once we control for personality type, as measured by the Myers-Briggs type indicator (MBTI), offers appear to be unaffected by the presence of a hostage. One explanation for the unresponsiveness of offers is that the incentive to provide higher offers to counter the increased probability of rejection is offset by the proposer’s own concern for equity vis-á-vis the hostage. Though not a direct test of the Fehr and Schmidt (1999) and Bolton and Ockenfels (2000) models, our results are qualitatively consistent with their predictions.