Chapter 48 PROMPTING STRATEGIC REASONING INCREASES OTHER-REGARDING BEHAVIOR ELIZABETH HOFFMAN Iowa State University KEVIN MCCABE University of Arizona VERNON SMITH University of Arizona 1. Introduction 1.1. Previous Results In two previous papers (Hoffman et al., 1994; Hoffman, McCabe, and Smith, 1996) we document the effects of property rights and monetary stakes on first-mover offers and second-mover responses in an ultimatum game based on the design of Kahneman, Knetsch, and Thaler (1986) and Forsythe et al. (1994). In the Kahneman, Knetsch, and Thaler (1986) and Forsythe et al. (1994) design, two players, are “provisionally allo- cated” $M. Player 1 is asked to propose a “division” of the $M, by making a offer of $X to player 2. Player 2 then indicates whether he or she accepts or rejects the division. If player 2 accepts the division, player 2 receives $X and player 1 receives $M - $X. If player 2 rejects the division, both players receive $0. Under the usual rationality con- ditions, the equilibrium of this game is for player 1 to offer player 2 the smallest $ unit of account, and for player 2 to accept that offer. Hereafter we refer to player 1 as the proposer and player 2 as the recipient. In the Kahneman, Knetsch, and Thaler (1986) and Forsythe et al. (1994) design, which we replicate in Hoffman et al. (1994), players do not behave as predicted by economic/game theoretic equilibrium theory. Instead, most proposers offer half the pie to recipients and some recipients reject offers of less than half the pie. This has led to considerable discussion in the literature about “fairness” in ultimatum and related two- person interactive games, where use of the word “fairness” implies an other-regarding utilitarian basis for the behavior. We have taken a different perspective. In Hoffman et al. (1994), we consider the effect of inducing a property right in the proposer position. Our reasoning is that proposers may be more inclined to pursue their self interest when endowed with rights to the proposer position that are deemed legitimate. Similarly, subject expectations may be Handbook of Experimental Economics Results, Volume 1 Copyright © 2008 Elsevier B.V. All rights reserved DOI: 10.1016/S1574-0722(07)00048-0