Expectations and fairness in a simple bargaining experiment

We evaluate two competing hypotheses that try to account for robust violations of the predictions of game theory in Ultimatum bargaining experiments. One popular hypothesis is that the subjects are motivated by considerations of fairness that are not modelled by traditional theory. The alternative hypothesis is that the subjects do not have common knowledge of the rationality, beliefs and motives of other players. Each hypothesis can explain existing data. We design several experiments to discriminate between these two hypotheses. The results provide strong support for the alternative hypothesis.