Two-person sequential bargaining behavior with exogenous breakdown

We examine bargaining behavior in a noncooperative game in which players alternate in making and responding to proposals over the division of a given surplus. Although the number of bargaining periods is unlimited and time is not discounted, the bargaining is subject to exogenous breakdown at each period with a fixed probability which is common knowledge. We manipulate three probabilities of break-down in a between-subjects design that allows comparison with previous studies of two-person bargaining with time discounting. Assuming that subjects maximize expected utility, and this utility is measured by monetary payoffs, our results reject both the subgame perfect equilibrium and equal split solutions. Data analyses reveal that a substantial percentage of subjects behave adaptively in that they systematically search for the highest acceptable demands.