Fair, Efficient and Envy-Free Bargaining: An Experimental Test of the Brams-Taylor Adjusted Winner Mechanism

Abstract

The Adjusted Winner mechanism for two-player bargaining has been theoretically shown to produce "fair" (efficient and envy-free) outcomes (Brams and Taylor 1996). We study this claim experimentally in a bilateral bargaining game of incomplete information for two divisible goods using three information conditions. Results indicate that the Adjusted Winner mechanism can be quite effective in achieving both efficient, equitable and envy-free outcomes in an experimental setting but results vary greatly depending on the knowledge that each party has of the preferences of their bargaining partner. Under conditions of common knowledge, when players have competing preferences, their bilateral decisions converge toward efficient outcomes, yet only one-third can be classified as "envy-free." In an environment where there is more uncertainty about preferences, pronounced strategic bidding emerges yet the result is twice as many envy-fee outcomes with increased levels of efficiency. Despite the fact that players dramatically misrepresent their true valuation for objects when ordinal preferences are commonly known to be complementary, both efficiency and envy-freeness approach maximum levels.

Fair cake-cutting algorithms with real land-value data

“…between fairness and efficiency [24,26,31]. Some experiments check whether participants choose to play strategically, and how their manipulations affect the fairness of the final outcome [21,32,35,42].…”

The Role of Information in Different Bargaining Protocols

“…We can draw a clear parallelism with our findings in the negotiation treatments. 16 In the presence of incomplete information, subjects are not sure of the valuations of the other subject so the natural fairest norm is that each party wins the 'same' number of issues. In other words, the outcome should be a tie in all issues (this is also the outcome in case of disagreement) or each party winning an issue and a tie occurring on the third one.…”

A simple mechanism for resolving conflict

“…The literature on conflict resolution is very large and can be found in a variety of fields including international relations 7 , political economy, game theory, experimental psychology and experimental economics. Nevertheless most literature focuses on unidimensional situations like the Rubinstein bargaining model (1982), the ultimatum game (see the seminal reference Guth et al (1982) or Thaler (1988) for a review) or the models on arbitration (see for instance the review by Brams, Kilgour and Merrill (1991)).…”

“…We abstract from the former informational effect in our analysis and do not observe more sincere play when we increase the number of issues. 7 See the excellent survey by Avenhaus and Zartman (2007).…”

“…The experimental literature on fair division (see for instance Daniel and Parco (2005) or Schneider and Kramer (2004)) has already shown that agents may not always reveal their information truthfully. The absence of a theoretical framework means thay cannot interpret these deviations from truthful behaviour.…”