When Knowledge Isn't Power : Asymmetric Information, Probabilistic Deceit Detection and Threats in Ultimatum Bargaining

We find that probabilistic deceit detection and cheap-talk threats enhance the fairness and honesty of a bargainer who possesses advantageous information and has the opportunity to be deceitful. In our ultimatum game, only proposers know the size of the pie. Proposers, therefore, have the option to understate the pie size and make their offer appear fairer than it really is. The separate and interactive effects of probabilistic deceit detection and cheap-talk threats have implications for how exchange can be facilitated by mechanisms that detect deceit and/or enable buyer communication in markets where sellers have informational advantages