Cheap talk in bargaining experiments: lying and threats in ultimatum games

In most models of bargaining, costless and unverifiable lies about private information and incredible threats about future actions are considered cheap talk and do not impact outcomes. In practice, however, this type of talk is often an integral part of bargaining. This experiment examines the impact of cheap talk in an ultimatum bargaining setting with two-sided imperfect information. In contrast to previous work, the experiment provides an opportunity for deceptions to be revealed and punished. Results show that lies about private information and (incredible) threats of future actions do influence bargaining outcomes (offers and responses) in both the short- and long-term. (C) 2002 Elsevier Science B.V. All rights reserved.