An Empirical Analysis of The Signaling and

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An Empirical Analysis of the Signaling and
Screening Models of Litigation
Paul Pecorino, University of Alabama, and Mark Van Boening,
University of Mississippi
Send correspondence to: Paul Pecorino, Department of Economics, Finance and Legal
Studies, University of Alabama, Box 870224, Tuscaloosa, AL 35487, USA;
Tel: 205-348-0379; Email: ppecorin@cba.ua.edu
We present an experimental analysis of the signaling and screening models of lit-

igation. In both models, bargaining failure is driven by asymmetric information.
The difference between the models lies in the bargaining structure: In the signaling
game, the informed party makes the final offer, while in the screening game the unin-
formed party makes the final offer. We conduct experiments for both models under
a common set of parameter values, allowing only the identity of the party making
the final offer to change. We find the anomalous behavior to be more common in the
signaling game, but the frequency of this behavior diminishes in the later rounds of
the experiment. Across both games, in the later rounds of the experiment over 90%
of offers are consistent with the theory. Having the right to make the offer raises
a player’s expected payoffs, but by much less than is predicted by theory. Dispute
rates across the two games are approximately equal. (JEL: K42, D82, C91)
1. Introduction
Asymmetric information is a leading explanation for the existence of

bargaining failures which result in costly litigation. We consider a stylized
legal bargaining framework in which an informed “plaintiff” knows whether
she has either a strong or weak case against an uninformed “defendant.”
We would like to thank J.J. Prescott, Rudy Santore, and two anonymous referees for
providing helpful comments on the article, and the Culverhouse College of Commerce
and Business Administration, University of Alabama for providing research support for
Paul Pecorino on this project. We would also like to thank William B. Hankins for
providing research assistance.
American Law and Economics Review
doi:10.1093/aler/ahy002
Advance Access publication on April 7, 2018
© The Author 2018. Published by Oxford University Press on behalf of the American Law and Economics
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214
Signaling and Screening Games 215
Within this class of games, when the informed party makes the final offer, it
is called a signaling model, and when the uninformed party makes the final
offer it is called the screening model. These informational-based models
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underlie much of the theoretical work on pretrial bargaining. We present
signaling and screening experiments in a litigation context that allows for a
side-by-side comparison of each model’s performance.1 Our ultimate goal
is to gain a better understanding of the factors which lead to disputes, and
understanding behavior in these canonical models of the litigation literature
is an important step in this process.
Under the parameterization we utilize, the theory predicts distributional
effects of moving from a screening game to a signaling game and allows for
possible efficiency effects. Typically, the identity of the individual making
the offer is not viewed as a choice variable, but if this choice has con-
sequences for efficiency, this identity might be specified in a contracting
relationship in which disputes are anticipated. For example, this is observed
in contracts specifying the rules for the dissolution of partnerships.2 How-
ever, the lack of such terms in contracting situations in which litigation is the
dispute resolution mechanism suggests small efficiency and distributional
effects associated with the identity of the party making the offer.
Under the theory, the dispute rate in our signaling game can be any-
where from zero to eleven percentage points lower than the dispute rate
in the screening game.3 We find that dispute rates across the two games
are approximately equal. Thus, there are no significant efficiency effects
1. Despite their widespread use, these two models of litigation have not yet been
comparatively analyzed in an experimental setting. In this sense, our article is analogous
to Kübler et al. (2008), who present a side-by-side comparison of the signaling and
screening versions of the Spence (1973) labor market model. However, we find relatively
greater support for our screening model, while they find more support for their signaling
model.
2. One common provision is that the individual triggering the dissolution of the
partnership makes an offer for the shares of the other partner. The second partner can
either sell her shares or buy her partner’s shares at the specified price. Although these
contract provisions do not exactly match our litigation setting, asymmetric information
over the partner’s valuation is a typical component of such models. See Fleischer and
Schneider (2012) and McAfee (1992).
3. This is for the parameter values we use. Note that there is no general result
implying that dispute rates are always lower in the signaling game. The relative dispute
rate across games will depend on the number of types present in the model as well as on
other parameter values.
216 American Law and Economics Review V20 N1 2018 (214–244)
associated with the right to make an offer. In addition, while having the
right to make the offer is valuable, it is only about 30–55% as valuable
as predicted by theory. Thus in our experiment, the distributional conse-

quences of moving from a screening game to a signaling game are much
less than what theory predicts.
The signaling game appears to place high cognitive demands upon exper-
imental subjects, and the comparison to the screening game gives us insight
about the extent to which this is true. We observe more anomalous offers in
the signaling game than in the screening game, but their frequency decreases
substantially over time in the signaling experiment. After the sixth round,
in both games over 90% of the offers are consistent with the theory. On the
other hand, anomalous acceptance behavior, which is almost entirely absent
in the screening game, persists in the later rounds of the signaling exper-
iment. As our experimental protocol in the two games is identical except
for the identity of the party making the offer, we attribute the differences in
anomalous behavior to the greater cognitive demands imposed by the sig-
naling game. In our conclusion, we discuss some implications for naturally
occurring litigation.
2. Background
There is a large literature in law and economics where trials are an

equilibrium outcome of games in which there is asymmetric information.
In the screening model of Bebchuk (1984), the uninformed party makes
an offer to the informed party. In the signaling model of Reinganum and
Wilde (1986), the informed party makes an offer to the uninformed party.
Much of the subsequent literature on pretrial bargaining is built upon
these models. Among other things, this literature analyzes how institu-
tions such as fee shifting and contingency fees affect settlement rates.4
Our experiment is closely based on the Bebchuk and Reinganum and Wilde
models.
There is an extensive experimental law and economics literature.5 With
a few exceptions, this work does not analyze the standard models of pretrial
4. For a review of the relevant literature, see Spier (2007), Daughety and
Reinganum (2012), and Wickelgren (2013).
5. See Camerer and Talley (2007) and Croson (2009) for surveys of the literature
on experimental law and economics.
bargaining in which disputes result from asymmetric information. The

extensive literature on arbitration has focused on how dispute rates are
affected by the choice of arbitration procedure, but this is generally done in

a setting of symmetric information.6 A variety of issues have been examined
experimentally in the civil litigation literature. These include conditional
cost shifting under which the shifting of certain trial costs is a function
of either the outcome of trial or of the relationship between the trial out-
come and offers made in the pretrial negotiation period. (See, e.g., Coursey
and Stanley, 1988 and Main and Park, 2002.) Again, in those experiments,
the players are symmetrically informed. In work testing of the Priest and
Klein’s (1984) selection hypothesis there is two-sided asymmetric infor-
mation.7 That work does not constitute a direct evaluation of either the
screening or the signaling models that we analyze here.
Some of our previous work has used the screening model of litigation
as a baseline in the context of analyzing other issues. Pecorino and Van
Boening (2004, 2015) analyze voluntary disclosure and Pecorino and Van
Boening (2014) consider the effects of asymmetric dispute costs on set-
tlement behavior. Here, we also present the screening game as a baseline.
The signaling game serves as the treatment, that is, the switch from having
the uninformed party make the offer to having the informed party make the
offer. To our knowledge, there has been no systematic empirical comparison
of these two games in the litigation context.
In standard models of litigation (e.g., Reinganum and Wilde (1986) and
Bebchuk (1984)), there is an ultimatum game embedded in the larger game
of pretrial bargaining between the plaintiff and defendant. The “pie” is the
joint saving which is achieved when a settlement is reached and the costs
of trial avoided. Because fairness concerns are absent in these models, the
recipient is willing to accept an offer which equals her expected payoff
at trial. However, from the large experimental literature on the ultimatum
game we know behaviorally that the recipient of an offer generally demands
some share of the joint surplus and that if too little surplus is proposed,
6. See, for example, Ashenfelter et al. (1992), Dickinson (2004) and (2005), Deck
and Farmer (2007), Deck, Farmer and Zeng (2007), and Birkeland (2013). Pecorino and
Van Boening (2001) analyze arbitration with asymmetric information.
7. See, for example, Stanley and Coursey (1990). One treatment of Inglis et al.
(2005) also adopts this information structure.
then the offer will be rejected.8 Thus, prior experimental work leads to
the expectation that more surplus than predicted under the standard theory
will be provided in settlement offers and that there will be disputes not

predicted by the theory when the parties cannot agree on what constitutes a
fair offer. Both of these behavioral elements are present in our previous work
(Pecorino and Van Boening, 2004, 2014, and 2015) involving the screening
game.
There has been a fairly extensive analysis of signaling games in the
experimental economics literature. Some of this work has focused on
the performance of certain equilibrium refinement concepts. For example,
Brandts and Holt (1992) find mixed support for the refinement concept
known as the intuitive criterion, which places restrictions on out of equi-
librium beliefs.9 Banks et al. (1994) test a range of refinement concepts
and find mixed evidence that these refinements are predictive of behavior.
Cooper et al. (1997) provide evidence against the empirical validity of the
intuitive criterion. None of this previous literature has been in a litigation
setting.10
In the civil litigation literature, the refinement D1 (Cho and Kreps, 1987)
is required to eliminate all but the pure strategy separating equilibrium
which has typically been the focus of this theoretical work. The D1 refine-
ment is stronger than the intuitive criterion meaning it is less likely to hold
empirically. Our data reject D1, but given the results cited above, this is
unsurprising. Accordingly, our analysis does not focus on the validity of
D1. We focus instead on a semi-pooling equilibrium (described below), as
our results are more consistent with that prediction. We comment on the
failure of the D1 refinement concept as appropriate.
8. This literature is initiated by Güth et al. (1982). For a recent survey, see Güth
and Kocher (2014).
9. They find that whether or not the predictions of the intuitive criterion hold
depends upon the details of the game. Also, Brandts and Holt (1993) show how the
dynamics of learning in these signaling games can lead to different outcomes. The intu-
itive criterion places restrictions on out of equilibrium beliefs. It requires player B to
place zero weight on the probability of action by player A if that action is associated with
payoffs which are dominated by the payoffs earned by A in equilibrium.
10. Also see Cooper et al. (1997), Cooper and Kagel (2008), Kawagoe and Tak-
izawa (2009), de Haan et al. (2011), Drouvelis et al. (2012) and Jeitschko and Normann
(2012).
3. The Theory
The screening model we describe is a simplified version of Bebchuk

(1984), while the signaling model is a simplified version of Reinganum and
Wilde (1986).11 Both the plaintiff and the defendant are risk neutral. In all
of our analyses, the probability that the plaintiff prevails at trial is com-
mon knowledge, and we furthermore assume that this probability equals
1. In presenting the theory, we will use the parameter values from our
experiment to generate the relevant predictions and we will use the same
terminology that we later use in the Section 5. Thus, we will refer to the
informed plaintiff as player A and the uniformed defendant as player B.
At trial, income is transferred from B to A which is what distinguishes the
player roles. The plaintiff is either type AH with a strong case or type AL
with a weak case. If the case proceeds to trial, player A receives judgment
J i , i = H , L with J H > J L . Player A knows her type, but B only knows that
with probability q he faces a type AH plaintiff and with probability 1 − q he
faces a type AL plaintiff. The court costs for A and B are, respectively, CA and
CB . These costs are incurred only if the case proceeds to trial. Using this sim-
ple environment, we first present the screening model and then the signaling
model.
3.1. The Screening Game

The stages of the screening game are as follows:
0. Nature determines player A’s type which is AH with probability q

and AL with probability 1 – q. Player A knows her type, but B knows
only the probability q that she is AH .
1. Player B makes an offer OB to player A.
2. Player A accepts or rejects the offer. If the offer is accepted, the
game ends with the player A receiving a payoff of OB and player B
receiving a payoff of –OB (i.e., B incurs a cost equal to OB ).
3. If the offer is rejected, trial occurs. Player A receives the payoff
J i – CA and player B receives the payoff –(J i +CB ), where i = H , L.
11. We present a two-type signaling model. For a complete analysis of such a

model, see Daughety (2000).
Note that our game description implies the use of the American rule under
which both parties bear their own costs of trial. In our experiment we use
the following parameter values: J L = $1.50, J H = $4.50, q = 1/3, and

CA = CB = $0.75. In the experiment we present all values in pennies so
that, for example, $1.50 is written as 150. We follow that convention in what
follows.
The plaintiff A will accept any offer that leaves her at least as well off as
the expected outcome at trial. In other words, Ai will accept any offer such
that OB J i − CA . The defendant B is free to make any offer he chooses,
but the optimal offer will be one of the following:
OBL = J L − CA = 75, (1a)

OBH = J − CA = 375.
H
(1b)
Player B will choose either the low screening offer OBL that only AL will
accept or the high pooling offer OBH that both plaintiff types will accept. He
offers OBL if
(1 − q)OBL + q(J H + CB ) < OBH . (2)
The left-hand side represents the expected payout from the offer OBL which
is accepted with probability 1 – q and rejected with probability q (the proba-
bility that AH is encountered). When the offer is rejected, B proceeds to trial
and pays J H + CB . The right-hand side is the B’s payout from the higher
offer, which is accepted by both player A types. Screening offers are made
in this model when the probability q of encountering a high damage plaintiff
is sufficiently small. Rearranging Equation (2), while making use of (1), the
condition for B to make the low offer may be expressed as follows:
JH − JL
1/3 = q < = 0.67. (3)
(J H − J L ) + CA + CB
Thus, under our parameter values, the condition is met and we have the
predictions that a low screening offer OBL will be made and that trial occurs
with probability q = 1/3. The predicted dispute rates in our screening game
are 0% for AL , 100% for AH , and 33% overall. The predictions of this game
are summarized in Table 1, which is found in Section 3.3.
3.2. The Signaling Game

The stages of the signaling game are similar to those above with 1 and
2 replacing 1 and 2.

1 . Player A makes an offer OA to player B.
2 . Player B accepts or rejects the offer. If the offer is accepted, the
game ends with player A receiving payoff OA and player B receiving
payoff –OA .
The defining feature of the signaling game is that the informed player (A)
makes the offer to the uninformed player (B). Multiple equilibria are a prob-
lem in signaling games. In this particular game, the refinement concept D1
has been used to eliminate all but a pure strategy separating equilibrium.12
However, because prior experiments strongly suggest that we should not
expect to find support for D1 in our data, we will present predictions for
semi-pooling equilibria instead.13 It is worth noting that the model predic-
tions under D1 are endpoints of the predictions intervals for semi-pooling
equilibria. Thus, the D1 predictions are a special case of the semi-pooling
predictions.
Before proceeding, it is useful to present the offers by each player A type
in a full information game in which B knows A’s type. The offers are as
follows:
OAL = J L + CB = 225, (4a)

OAH = J + CB = 525.
H
(4b)
12. See, for example, Daughety and Reinganum (1993, p. 322) or Spier (2007,
p. 276, fn. 26.)
13. D1 restricts out of equilibrium beliefs in the following way: Suppose an AL
plaintiff would be willing to deviate to a particular out-of-equilibrium offer if it were
accepted with a probability of ½ or higher, but that an AH plaintiff would only switch if
the same offer were accepted with a probability of ¾ or higher. In this case, the AL plaintiff
is considered to have the greater incentive to make the offer and, under D1, the defendant
must put a weight of 1 on the probability that such an offer comes from an AL plaintiff.
See Cho and Kreps (1987). The refinement D1 is stronger than the intuitive criterion
because it requires zero weight be placed on out-of-equilibrium actions which are not
necessarily dominated by a player’s equilibrium payoff. However, this strengthening of
the intuitive criterion is necessary to rule out pooling and semi-pooling equilibria. This
is the reason why this refinement is employed in the theoretical literature.
These offers represent B’s dispute payoff against each type. This reflects
the fact that the theory embeds an ultimatum game in which player A has
all of the bargaining power. The offer in (4a) will be the revealing offer by

AL in what follows, while the offer in (4b) represents the upper bound on
possible semi-pooling offers.14
In the semi-pooling equilibrium all AH players offer OAS , where J H −
CA OAS < OAH (or 375 OAS < 525). If only AH made the offer OAS ,
player B would accept it, but if player B always accepts this, AL would
also offer OAS . Thus, there is an equilibrium in mixed strategies in which AL
sometimes bluffs by offering OAS and in which player B sometimes rejects
OAS . A mixed strategy equilibrium requires the players to be indifferent
between the strategies they mix between.
Player AL uses a mixed strategy in which she makes the revealing offer
OAL with probability 1–b and bluffs by offering OAS with probability b. The
low offer OAL is accepted with probability 1. If the higher offer OAS is rejected
with probability
OAS − J L − CB OAS − 225

r= = , (5)
OAS − J L + CA OAS − 75
then AL will be indifferent between the two offers. Upon observing OAS ,
player B uses Bayes’ rule and the equilibrium probability that AL bluffs to
update his beliefs about A’s type. When the probability AL bluffs is

q J H + CB + OAS 525 − OAS
b= = (0.5) S , (6)
1−q OA − J − C B
S L OA − 225
then player B is indifferent between accepting or rejecting OAS . The semi-

pooling offer can be any offer such that 375 OAS 525. In our experiment
offers are restricted to be whole numbers. Thus, under our design there are
150 possible semi-pooling offers. However, in any particular semi-pooling
equilibrium, all the AH players and all of the bluffing AL players will pool on
14. We can rule out a pure strategy pooling equilibrium, because our parameters
satisfy 150 = CA + CB < (1 − q)(J H − J L ) = 200. A type AH plaintiff will accept no
less than J H – C A in a pooling equilibrium. The defendant B will prefer to take all types
to trial rather than settling at J H − CA in a pure pooling equilibrium. Obviously, B would
reject all higher offers as well, if they were part of a pure strategy pooling equilibrium.
one and only one value of OAS .15 Using Equation (5), the predicted dispute
rate on semi-pooling offers ranges from r = 50% if the offer is OAS = 375
up to r = 67% if the offer is OAS = 525. The expected payoff to AH in a

semi-pooling equilibrium can range from 375 to 425. Using (5) and (6), the
dispute rate for AL can range from 0% to 25% and the overall dispute rate
can range from 22% to 33% in a semi-pooling equilibrium.16
The out-of-equilibrium beliefs and actions are as follows: It is a dominant
strategy for B to accept an offer OA < OAL = 225 and this offer is accepted
with probability 1. Likewise, it is a dominant strategy for B to reject an
offer OA > OAH = 525 and this offer is rejected with probability 1. An offer
> 226 which is not equal to OAS is believed to be from AL and is rejected
with probability 1.
3.3. Predictions
Table 1 summarizes our predictions. We focus on three sets of predic-
tions and their comparative statics across the two games. The first involves
offers. The predicted difference between player B screening offers OBL and
AL revealing offers OAL is 150 (75 v. 225). In the signaling game AL bluffs
and AH separating offers are predicted to coincide on a unique semi-pooling
offer OAS . The second involves dispute rates and potential efficiency gains.
For offers in the range 75–225, the AL v. B dispute rate is unaffected by the
game structure (both are 0%). In the signaling game, the overall AL dispute
rate could be as high as 25% because of bluffs by AL . The predicted AH v.
B dispute rate is 33–50 percentage points lower in the semi-pooling equi-
librium compared with the screening game. The overall A v. B dispute rate
15. It is not possible to have the AH plaintiffs and bluffing AL plaintiffs make
more than one offer between 375 and 525 because it is not possible to find rejection
probabilities that make both plaintiff types indifferent between both offers while also
making the AL plaintiffs indifferent between bluffing and not bluffing.
16. Under D1, there is a pure strategy separating equilibrium under which AL
always demands 225 and AH always demands 525. The low offer is always accepted and
the high offer is rejected with probability r = 67%. The high offer and the rejection rate
r are at the upper endpoints of the prediction intervals for the semi-pooling equilibrium.
The overall dispute rate under D1 is predicted to be 22% which is the lower endpoint of
the semi-pooling prediction interval. Under D1, the disputes rates are 0% for AL and 67%
for AH . These are, respectively, the lower and upper limits of the dispute rates possible
in the semi-pooling equilibrium.
Table 1. Predictions by Game Type
Game Sender: offer Dispute rate A’s payoff Recipient decision

Screening B: OBL = 75 AL : 0% AL : 75 AL accepts OB 75.
AH : 100% AH : 375 AH accepts OB 375.
A: 33% A: 175a
Signalingb AL : OAL = 225, AL : 0–25% AL : 225 B accepts OA 225, and
OAS ∈ [375 − 525] AH : 50–67% AH : 375–425c rejects OAS ∈ [375 − 525]
AH : OAS ∈ [375 − 525] A: 22–33% A: 275–292a at rate r.d
a
Player A expected payoff = (1 – q)(AL payoff) +q(AH payoff) with q = 1/3.
b
Semi-pooling equilibrium in which AL and AH pool on a single value of OAS . Underlined values are D1
predictions (see text fn. 16).
c
Player AH expected payoff = r(375) + (1 − r)OAS . See text Equation (6) for r.
d
B also rejects any 226 OA 374.
could range from no difference (both 33%) to 11 percentage points lower in

the signaling game (22% v. 33%). The third involves distributional effects
on the player A payoffs. Moving from the screening game to the signaling
game, the AL payoff increases by 150, from 75 to 225. The AH expected
payoff increases by anywhere from 0 to 50. In total, A’s expected payoff
increases in a range from 100 to 117. These increases represent the value
to A of having the offer, that is, the expected increase in compensation the
plaintiff receives when she has the right to make the settlement offer instead
of the defendant.
While the theoretical predictions in Table 1 provide benchmarks, these
need to be viewed in light of the embedded ultimatum game discussed above
in Section 2. Here, the embedded pie is the CA + CB = 150 joint surplus
from settlement which constitutes the bargained over amount (Pecorino
and Van Boening, 2010), and we are skeptical that empirically the offering
party will be able to extract all of the surplus. For example, in the screening
game it may be the case that AL needs OB > 75 before she will accept the
offer. When presenting the results, we label offers according to intervals
consistent with the theoretical predictions, but allowing for a sharing of the
joint surplus from settlement. In the screening game the point prediction
for player B’s offer is OB = 75, but any offer 75 < OB < 225 is consistent
with the screening behavior, as it is theoretically acceptable to AL but not
AH , and leaves both AL and B with nonnegative surplus from settlement. In
the screening game we refer to:
Screening offer: An offer by player B in the interval 75 OB 225.
Pooling offer: An offer by player B in the interval 375 OB 525.
Analogous reasoning applies in the signaling game. In the signaling game,

we refer to:

Revealing offer: An offer by player AL in the interval 75 OA 225.
Bluffing offer: An offer by player AL in the interval 375 OA 525.
Separating offer: An offer by player AH in the interval 375 OA 525.
Collectively, we refer to subjects’ offers in these intervals as “consistent

with theory.”
We are also interested in the frequency of anomalous offers in each game,
because ex ante we believe that the signaling game places greater cognitive
demands on both players than does the screening game. In both games
“between” offers are anomalous:
Between offer: An offer by either player in the interval 226 O 374.
For player B in the screening game this offer is too low to be accepted by
AH , but offers > 100% of the surplus from settlement to AL . In the signaling
game, these offers should be rejected by B at a 100% rate using the following
reasoning: For AH , an offer in the 226–374 range is dominated by an offer of
375 or more, since the latter equals or exceeds the AH dispute payoff. Thus,
B should place 100% weight on the offer being made by AL and reject it as it
exceeds his dispute payout of 225 v. AL . A failure to do so violates the “test
of dominated strategies”, a refinement which is weaker (and therefore more
likely to be empirically valid) than either the intuitive criterion or D1. (See
Kreps, 1990, p. 436.) Given this expected response by B, AL should never
make an offer in this range. Any offer < 75 or > 525 is also anomalous in
both games, but we observe very few of these offers, especially in the later
rounds of the experiment. In contrast, “between” offers are significantly
more common.
Note that our predictions are fairly robust to the introduction of risk aver-
sion on the part of either party.17 In the screening game, if B is very risk
17. In the screening game, once player A receives an offer, she faces no risk: she
simply compares the offer to the fixed outcome at trial and chooses whichever is higher.
The trial outcome is A’s minimally acceptable offer, which is fixed and therefore not
affected by her risk aversion. Thus, a player B engaged in a sorting offer will make the
offer in (1a) regardless of A’s risk preference. Under the theory, AL always accepts this
offer so B incurs no rejection risk and makes the offer in (1a) independent of his own risk
averse, it could induce him to make a pooling offer when a screening offer
is otherwise predicted. In the experiment, we observe few (~5%) pooling
offers. In the signaling game, risk aversion affects the precise mixing prob-

abilities that make AL indifferent between a revealing offer and a bluff and
B indifferent between accepting or rejecting OAS .
4. Experimental Design
Table 2 summarizes the ten sessions in our experimental design, five

screening game sessions and five signaling game sessions. Subjects were
recruited from summer business classes at the University of Alabama. The
number of bargaining pairs per session ranges from 5 to 8, while each
session lasted 12–14 rounds18 (see table notes for session-specific details).
The player in the role of the plaintiff is referred to as player A and the
player in the role of the defendant is referred to as player B. Subjects were
not informed ahead of time how many rounds there would be. A typical
session, inclusive of an instructional period at the beginning and private
payment at the end, lasted between one-and-a-half and two hours. Average
payoffs were about $31, ranging from $17 to $47. Subjects were not paid a
show-up fee; all earnings were from decision-making.
Upon arrival, subjects were randomly assigned to one of two adjacent
rooms, one for player A and the other for player B. An experimenter was
assigned to each room. All subjects received common instructions, which
included step-by-step practice rounds and earnings calculations from the
perspective of both player A and player B.19 Subjects were not informed of
their role until the end of the instructions and they maintained that same role
throughout the session. The experiment did not utilize verbiage like plaintiff,
preference as well. In the signaling game, player AL incurs no risk by making a revealing
offer, as this offer is always accepted. An AH player incurs risk with a high offer, but
under the theory the next lower offer accepted with a positive probability (the low offer
J L + C B ) is dominated by her dispute payoff J H – C A . Thus, risk aversion will not cause
AH to lower her offer.
18. Our design had a minimum of 12 rounds per session. Subjects were recruited
for a two-hour period, and if time permitted we ran additional rounds.
19. We used randomizers (i.e., a die roll and drawing cards from a deck) to generate
A and B decisions in the practice rounds, so as to avoid implicitly suggesting to participants
what decisions to make during the experiment.
Table 2. Experimental Design
No. of negotiations
No. of Average earnings

Game sessions Pairs Rounds n B v. AL B v. AH (min, max)
Screening 5a 31 65 402 273 129 $31.89 ($21, $46)
Signaling 5b 34 60 408 276 132 $30.63 ($17, $47)
a
Session Scr1: 7 pairs, 12 rounds, n = 84 negotiations (49 B v. AL , 35 B v. AH ). Scr2: 5 pairs, 13 rounds,
n = 65 (47, 18). Scr3: 8 pairs, 13 rounds, n = 104 (75, 29). Scr4: 5 pairs, 13 rounds, n = 65 (41, 24). Scr5:
6 pairs, 14 rounds, n = 84 (61, 23).
b
Session Sig1: 6 pairs, 12 rounds, n = 72 negotiations (50 B v. AL , 22 B v. AH ). Sig2: 8 pairs, 12 rounds,
n = 96 (61, 35). Sig3: 8 pairs, 12 rounds, n = 96 (68, 28). Sig4: 5 pairs, 12 rounds, n = 60 (42, 18). Sig5:
7 pairs, 12 rounds, n = 84 (55, 29).
defendant, judgment at trial, court costs, etc.20 Each subject had a private
Record Sheet on which to write decisions, and each experimenter had forms
(not visible to subjects) on which to record these decisions. The written deci-
sion consisted of either an offer (sender) or an accept/reject choice (recipi-
ent). After all subjects in a room had made their decisions, the experimenters
met at the entrances to the adjacent rooms, silently copied information from
one another’s forms, and then returned to the rooms and wrote the results on
the respective subject’s Record Sheet.21 Each round, a subject’s feedback
was limited to the offer, accept/reject decision and payoff/cost specific to
his or her negotiation, that is, there was no dissemination of information
on outcomes for other bargaining pairs. Other than the decisions transmit-
ted by experimenters between the two rooms, there was no communication
between the A and B players or among players within a room.
In both experiments, A’s payoff is the sum of her payoffs from all rounds
and B’s payoff is a lump sum minus the sum of his costs from all rounds.22
The lump sum is known in advance by player B but is never revealed
20. Generally speaking, most law and economics experiments which are a direct
test of a theory are conducted in a context-free environment. See the discussion in Landeo
(2018).
21. The information exchange took about 15–20 seconds. The entrances to the
two rooms were directly adjacent so that when the experimenters silently exchanged
information, they could closely monitor subjects. Each room had approximately forty
seats, and subjects were dispersed so as to ensure privacy and prohibit communication.
22. The lump sum is $68 in the screening game and $73 in the signaling game.
The higher lump sum in the signaling game reflects B’s higher expected cost per round
in this game. This kept B’s ex ante earnings opportunities approximately equal across
the two games. Since B did not know how many rounds the experiment would last, there
was no way for him to compute a lump sum per round and make decisions based on such
a number.
to player A. In all sessions the strangers matching protocol is used, with

new random and anonymous pairings prior to the start of each and every
round.

The sequence in a round of the screening game is as follows:
0. A six-sided die is rolled privately for each Player A, where a roll of

1, 2, 3, or 4 is called outcome L and a roll of 5 or 6 is called outcome
H . Only A knows the outcome of the die roll. Player B knows how
the die roll maps into the outcomes.
1. Player B decides on an offer to submit to Player A. This offer may
be any whole number between (and including) 0 and 699. Player
B’s offer is then communicated to Player A. Player A is given a few
moments to decide whether or not to accept the offer. Player A’s
decision is then communicated to Player B.
2. If Player A accepts Player B’s offer, then the round is over for that
pair.
Players A’s Payoff for the round = Player B’s offer
Player B’s Cost for the round = Player B’s offer.
3. If Player A does not accept B’s offer, both A and B incur a fee of 75.
A’s payoff and B’s cost for the round depend on the die roll and the
fees:
Under outcome L: Player A’s Payoff for the round = 150 – 75 = 75
Player B’s Cost for the round = 150 + 75 = 225
Under outcome H: Player A’s Payoff for the round = 450 – 75 =
375
Player B’s Cost for the round = 450 + 75 = 525.
The description of the game above is very similar in language and appear-
ance to that used in the subjects’ instructions. The information in step 3 was
displayed in both rooms by the use of overhead projectors. The overheads
included the statement that the same information was displayed in both
rooms.
The parameters and procedures for the signaling game are identical to
the screening game, except that player A makes the take-or-leave-it offer to
player B. The steps of a round are identical to the screening game except
for the following modifications.
1 . Player A decides on an offer to submit to Player B. This offer may

be any whole number between (and including) 0 and 699. Player
A’s offer is then communicated to Player B. Player B is given a few

moments to decide whether or not to accept the offer. Player B’s
decision is then communicated to Player A.
2 . If Player B accepts Player A’s offer, then the round is over for that
pair.
Players A’s Payoff for the round = Player A’s offer
Player B’s Cost for the round = Player A’s offer.
5. Results
We first present data on offer behavior, and we then analyze dispute

behavior and the value to player A of having the offer. The units of analysis
are individual offers, accept/reject decisions and payoffs. We also conducted
the analysis treating each session as a single observation, and performed
Fisher exact randomization tests for the hypothesis tests. The point estimates
and statistical P-values are quite robust to the unit of analysis, so only the
offer level results are presented below. In some tables, we also include data
separately from round 7 onward (hereafter R7-end) to evaluate any evolution
in subjects’ behavior over time (e.g., learning). These rounds represent the
second halves of the individual sessions.
5.1. Offer Behavior

Table 3 reports offer frequency distributions using the intervals identi-
fied in Section 3.3. In the screening game, 87% of the player B offers are
screening offers 75–225, 92% in R7-end. In the signaling game, 75% of
the AL offers are consistent with semi-pooling: 63% are revealing offers
75–225 and 12% are bluffs 375–525. In R7-end, 89% are consistent with
semi-pooling: 81% are revealing offers and 8% are bluffs. The lower occur-
rence of bluffs in R7-end is consistent with the high empirical rejection
rate on these offers (see Section 5.2). Somewhat surprisingly, 22% of the
AL offers are anomalous between offers 226 and 374. Their decline to
11% in R7-end is consistent with the prior work demonstrating the impor-
tance of learning in signaling games (e.g., Cooper and Kagel (2008)), but
a confounding factor is player B’s willingness to accept some of these
Table 3. Offer Frequency Distributions
Proportion (number) of offers in specified interval

Offers consistent with theory Anomalous offers
Game: player Rounds n 75–225 375–525 226–374 < 75, > 525
Screening: B All 402 0.87 (350) 0.05 (21) 0.06 (24) 0.02 (7)a
R7-end 216 0.92 (199) 0.05 (11) 0.03 (6) – (0)
Signaling: AL All 276 0.63 (173) 0.12 (34) 0.22 (60) 0.03 (9)b
R7-end 130 0.81 (105) 0.08 (11) 0.11 (14) – (0)
Signaling: AH All 132 0.01 (1) 0.91 (119) 0.03 (4) 0.06 (8)b
R7-end 74 – (0) 0.96 (71)c 0.03 (2) 0.01 (1)b
a
Six of these offers are <75 and one is >525.
b
All of these offers are >525.
anomalous offers (Section 5.2). Ninety percent of the player AH signaling

game offers are separating offers 375–525, 96% in R7-end. Collectively,
87% of the screening game offers and 80% of the signaling game offers
are consistent with the theory, with the percentages rising to 92% for both
games in R7-end.23
Table 4 provides analysis on offers consistent with the theory.24 As a
robustness check, we also estimate a dummy-variable regression with robust
standard errors clustered on sessions, so as to control for session-specific
variation. Those results are provided in Appendix Table A1, and they are
quite close to those shown in Table 4. Limiting the data to R7-end in Table 4
and in Table A1 yields similar results, so they are omitted.
Theory predicts a difference of 150 between the B screening and AL
revealing offers (75 v. 225). The mean offers are 112 and 204, respectively,
and differ by 92. Player B’s mean offer represents 37 or 25% of the 150
surplus from settlement, and AL ’s mean offer represents 21 or 14% of the
23. As expected, there is very little support for refinement D1 in the signaling
game: only 5% (7/132) of the player AH offers match the D1 prediction of 525.
24. If, for example, we include all AL offers, this will include bluffs and between
offers which provide a large negative surplus to player B if accepted. When all such offers
are considered, the average offer from AL to B is 265, which represents a surplus of –40
for B. However, this number has little bearing on how AL behaves when she, via her offer,
reveals her type and attempts to settle with B. Similarly, the inclusion of player B between
or pooling offers has little bearing on how B behaves when he makes a screening offer
and attempts to settle with AL . The other offers we omit (i.e., those < 75 or > 525) are
extremely rare, especially in the R7-end.
Table 4. Offers Consistent with Theory
Player type and offer interval Offers 75–225 Offers 375–525

AL
B AH AL v. B AH v. AL
Statistic 75–225 75–225 375–525 375–525 H0 : Diff. = 150 H0 : Diff. = 0
n 350 173 34 119 Est. diff. = 92.0 Est. diff. = 37.4
Mean 111.6 203.6 417.5 454.9 t = 18.2a,b t = 4.12a
(SE) (2.02) (2.46) (8.42) (4.23)
Median 100 220 400 450 Est. diff. = 120 Est. diff. = 50
z = 18.5a,c z = 4.18a,c
a
Test statistic has P = 0.000 for the given H0 .
b
Difference-in-means test assumes unequal variances (variance ratio F test has P = .022).
c
Mann–Whitney rank-sum z-statistic.
surplus.25 The difference of 92 is 61% of the predicted amount. The median

offers of 100 and 220 represent less surplus for the recipient (17% and
3%, respectively), and they differ by 120 or 80% of the predicted 150. Fur-
ther analysis of the data reveals that in both games the preponderance of
offers are strongly in the direction of their respective point predictions, but
a few include sufficient surplus so as to cause some divergence between
the mean and median.26 Nonetheless, both the mean and median differ-
ences are statistically different from the 150 prediction. Overall, the B
screening offers and AL revealing offers tend to be stingy, but both contain
enough surplus so that their difference is about 60–80% of the predicted
amount.
In the signaling game, bluffing AL players and AH are predicted to
pool on a single value of the semi-pooling offer OAS . Empirically, this
implies that AL and AH offers 375–525 will be statistically indistinguish-
able. Despite the fact that a high percentage of the player A offers are
consistent with semi-pooling, AL and AH are unable to successfully coor-
dinate on a unique semi-pooling offer. In particular, the typical AL bluff
25. AL revealing offers appear to contain relatively less surplus than do B screening
offers. The difference-in-means test H0 : μB – 75 = 225 – μAL has t = 4.76 (P < 0.000);
also see fn. 26.
26. Eighty percent of the B screening offers are 75–125 (1/3 or less of the surplus),
while 8% are 200–225 (5/6 or more of the surplus). For AL signaling game revealing
offers, 81% are 200–225 (1/6 or less of the surplus) and 3% are 75–100 (5/6 or more
of the surplus).
Table 5. AL v. B Dispute Rates
Proportion of disputes (number of offers) in specified interval

All
Game Rounds offers 75–225 375–525 226–374 < 75, > 525
Screening All 0.16 (273) 0.17 (241) 0.00 (13) 0.00 (15) 1.0 (4)a
R7-end 0.14 (149) 0.15 (136) 0.00 (8) 0.00 (5) –
Signaling All 0.32 (276) 0.10 (173) 0.85 (34) 0.55 (60) 1.0 (9)b
R7-end 0.18 (130) 0.10 (105) 0.73 (11) 0.43 (14) –
a
All four are < 75.
b
All nine are > 525.
(mean 418, median 400) is substantially lower than the typical AH sepa-
rating offer (mean 445, median 450). The tests on the far-right of Table 4
reject the hypothesis of equal AL and AH central tendencies on offers 375–
525. This coordination failure underscores the challenges posed by signaling
games, particularly when feedback is restricted to each litigant’s own negoti-
ation experience. Complicating any attempts at coordination is the empirical
dispute behavior, to which we now turn.
5.2. Dispute Behavior

Table 5 reports dispute rates between players AL and B. In both games,
their predicted dispute rate is 0% over the interval 75–225. The observed
rates are 17% in the screening game and 10% in the signaling game. These
excess disputes typically occur on offers containing relatively small amounts
of surplus, and they are clearly one factor driving the positive surplus in
B screening offers and AL revealing offers.27 In both games, the player
receiving the offer has a demand for surplus from settlement which is not
present in the theory. In Table 5, the rejection rate on AL bluffs 375–525
is 85%, 73% in R7-end. Below we discuss B’s rejection behavior on offers
375–525 (recall that B does not know A’s type upon receiving an offer),
but here we note that the observed rate is higher than the 50–67% rate
27. In the screening game, rejection rates are 25% on offers 75–99 (less than 1/6
of the surplus), 16% on offers 100–125, and 0% on offers above 125. In the signaling
game, rejection rates are 13% for offers 201–225 (less than 1/6 of the surplus), and 3%
on offers 200 and below.
Table 6. AH v. B Dispute Rates
Proportion of disputes (number of offers) in specified interval

All
Game Rounds offers 75–225 375–525 226–374 < 75, > 525
Screening All 0.92 (129) 0.98 (109) 0.13 (8) 0.89 (9) 1.0 (3)a
R7-end 0.96 (67) 0.98 (63) 0.33 (3) 1.0 (1) – (0)
Signaling All 0.73 (132) 1.0 (1) 0.73 (119) 0.50 (4) 1.0 (8)b
R7-end 0.65 (74) – (0) 0.63 (71) 1.0 (2) 1.0 (1)b
a
All three are < 75.
b
All eight (one in R7-end) are > 525.
predicted on these offers. Perhaps one consequence of this is the decline in

the incidence of AL bluffs to 8% in R7-end.
Table 5 shows one striking anomaly that occurs in the signaling game:
the 55% player B dispute rate on AL between offers 226 and 374, 43% in
R7-end.28 The predicted dispute rate on these offers is 100%, but clearly
not all players B are able to engage in the chain of reasoning which would
lead them to reject a between offer (see the discussion on the relatively
weak “test of dominated strategies” refinement in Section 3.3 above).29 The
frequent acceptance of these anomalous offers helps explain why AL was
slow to abandon them. Table 5 also shows that in the screening game, the
infrequent pooling offers 375–525 are always accepted by AL , as theory
predicts. (B is not predicted to make a pooling offer, but if he does, AL is
predicted to accept it.)
Table 6 reports dispute rates between players AH and B. In the screening
game, the predicted dispute rate is 100%, conditional on AH receiving a
screening offer from B. Over the screening interval 75–225, the observed
dispute rate is 98%. The observed dispute rate on all offers is 92%, primarily
because AH readily accepts the occasional pooling offer 375–525 that she
sees. In the signaling game, the predicted AH dispute rate is 50–67%. The
28. Again, B does not know A’s type upon receiving the offer. Aggregating the
signaling game offers 226–374 from Tables 5 and 6, the player B rejection rate for this
interval is 55% (35/64) overall, 50% (8/16) in R7-end.
29. AL makes 94% of the between offers, so rejection is empirically justified. This
anomalous acceptance behavior is fairly widespread among the player B subjects. Half
(17/34) accepted at least one between offer, and one-fifth (7/34) did so twice or more.
observed dispute rate for AH separating offers 375–525 is 73% overall and
63% in R7-end. This latter percentage is within the predicted range, and
it is consistent with the typical AH separating offer of about 450.30 Player

AH does make a handful of offers outside of 375–525, but the AH dispute
rate on all offers (73%, 65% R7-end) is the same as the AH dispute rate on
separating offers.
In the signaling game, the predicted dispute rate of 50–67% on offers
375–525 is not contingent on A’s type as this is not observable by B upon
receiving the offer. Aggregating the AL bluffs in Table 5 with the AH separat-
ing offers in Table 6 yields a dispute rate of 76% (116/153), 65% (53/82) in
R7-end. These rejection rates are somewhat higher than expected given the
empirical player A offers 375–525.31 Player B’s empirical rejection rates are
68% (78/115) on offers 375–499 and 100% (38/38) on offers 500–525. In
R7-end, these rates are 57% (38/67) and 100% (15/15), respectively. Thus B
has an implicit demand which forces both AH and a bluffing AL to experiment
with offers < 500 to create a positive probability of acceptance.32
Table 7 evaluates dispute rate comparative statics across the two games.
The table shows the predicted comparative statics (game-specific predic-
tions are shown in table note a) and observed differences separately for
AL v. B, AH v. B, and A v. B. The predicted AL v. B comparative static on the
dispute rate is 0–25 percentage points higher in the signaling game semi-
pooling equilibrium than in the screening game. The observed dispute rate
is sixteen percentage points higher, which is consistent with the predic-
tion. However, both of the individual empirical dispute rates exceed their
respective point predictions, due primarily to the three reasons discussed
above.33 The predicted AH v. B comparative static is a decline of 33–50
30. Using Equation (5) and the Table 4 mean AH separating offer of 455, r =
60.5% (median 450 yields r = 60.0%).
31. Using Equation (5), the Table 4 means and medians on offers 375–525 imply
a dispute rate of about 56–61%.
32. This explains why the predictions under the refinement D1 are not borne out.
The prediction under D1 is that AH makes an offer of 525 which is rejected 67% of the
time. Empirically these offers are rejected 100% of the time and as a result, AH needs to
offer well below the D1 prediction to have a positive probability of acceptance.
33. One, in both games excess AL v. B disputes occur on offers 75–225. Two,
in the signaling game the dispute rate on AL bluffs is higher than expected. Three, AL
unexpectedly makes between offers 226 and 374 in the signaling game and B’s rejection
rate is high on those offers, albeit well below the predicted 100%.
Table 7. Comparison of Dispute Rates Across Games
Dispute rates for all rounds, all offers

Negotiation Predictiona Signaling Screening Diff. H0 : Diff. = 0b
AL v. B 0 to +25 0.32 0.16 0.16 z = 4.32
(n = 276) (n = 273) (P = .000)
AH v. B –33 to –50 0.73 0.92 –0.19 z = –4.01
(n = 132) (n = 129) (P = .000)
A v. B 0 to –11 0.45 0.40 0.05 z = 1.38
(n = 408) (n = 402) (P = .168)
a
Predictions are percentage point differences in dispute rates across games. From Table 1, predicted dispute
rates are AL v. B: 0–25% v. 0%, AH v. B: 50–67% v. 100%, and A v. B: 22–33% v. 33%.
b
Difference-in-proportions binomial test.
percentage points in the dispute rate in the signaling game relative to the
screening game. The observed difference is a 19-percentage point decline
in the signaling game, which is in the predicted direction and statistically
different from zero, but well below the minimum expected difference. The
less than expected decline is due to the higher than expected dispute rate in
the signaling game (73%) and the slightly less than expected dispute rate in
the screening game (92%). The overall Avs. B dispute rate is predicted to
decline by 0–11 percentage points. The observed difference is an increase of
five percentage points; this difference is small economically and not statis-
tically different from zero. Overall, we do not observe any major efficiency
effects related to which party has the power to make the offer.
5.3. The Value to A of Having the Offer

We now consider the value to player A of having the offer. Empirically,
the value of the property right depends on the difference between the player
A signaling game offer and the player B screening game offer, as well as the
dispute behavior of the respective recipient. In Table 8, we use the mean net
payoff earned by player A to assess the empirical value of the offer to A.34
For each player type, we conduct two statistical tests, one for equality of
means across games, and one for the predicted difference across games
34. Our analysis focuses on the mean rather than the median. Because of the high
dispute rates for AH players, the median is rather uninformative. When dispute rates are
50% or higher, the median payoff will always be 375 for these players. Thus, the median
surplus earned by AH players is 0 in both games.
Table 8. Player A Net Payoffs
Mean A payoff (SE) Difference-in-means tests

Prediction Signaling Screening Diff. H0 : Diff. = 0 H0 : Diff. = Pred.a
n = 276 n = 273 t = 6.33 t = 15.4
AL +150 174.0 130.3 43.7 (P = .000) (P = .000)
(4.92) (4.84)
n = 132 n = 129
AH 0 to +50 386.4 371.5 14.9 t = 3.31 t = 7.82
(3.13) (3.22) (P = .001) (P = .000)
n = 402 n = 408
A +100 to +117 242.7 207.7 35.0 t = 3.92b t = 9.18b
(6.03) (6.60) (P = 0.001) P = 0.000
a
For AH test, prediction value is +50. For player A test, prediction value is +117.
b
t-statistic calculated assuming unequal variances as variance ratio F test has P = 0.098.
(as the predictions are intervals for AH and A, we use the upper end of
the respective interval). As a robustness check, we also estimate a dummy-
variable regression with robust standard errors clustered on sessions. Those
results are similar to those in Table 8; see Appendix Table A2. We also
obtain comparable results using R7-end data.
The mean payoff for AL is about 44 higher in the signaling game. This
difference is statistically different from zero, but it is only 29% of the pre-
dicted 150. For AH the mean payoff is about 15 higher in the signaling game,
which is consistent with the semi-pooling equilibrium where the predicted
increase for AH ranges from 0 to 50. We note that our estimated increase is
different both economically and statistically from both the bottom (0) and
top (50) ends of that range. The overall average increase for A is 35, which
is well below the predicted increase of 100–117. Thus, the distributional
impact of having the offer in this setting is much less than is predicted by
the theory.
A combination of reasons explains why A gains less than predicted from
having the offer. One reason is that AL bluffs 375–525 are rejected at an 85%
rate, which is much higher than the 50–67% prediction. Another reason
is that B screening offers, AL revealing offers and AH separating offers
cannot extract all of the surplus from settlement. These offers almost always
contain positive surplus for the recipient. Moreover, B screening offers and
AL revealing offers are rejected about 10–17% of the time. If we restrict the
analysis to B screening offers and AL revealing offers, we can gain more
insight into the importance of these factors. When we do so (table omitted)

we find higher estimates for the value of having the offer, but these are still
well below the point predictions. For AL , the mean payoff increase is 82 or

55% of the predicted 150. Thus failed negotiations on offers in the 75–225
range significantly reduce the predicted distributional impact of having the
offer. For AH , restricting offers to the 375–525 range makes little difference
as the estimated value of having the offer remains at about 20. With the
restricted offers, the overall average increase for player A is 53, which is
still well below the predicted range 100–117.
6. Conclusion
We provide an experimental study of screening and signaling models

in a legal bargaining context. The two asymmetric information games are
identical, with the exception of whether the uninformed defendant (the
screening game) or the informed plaintiff (the signaling game) makes the
pretrial offer. Overall, the screening model performs well in aggregating
the data. Player B (the defendant) makes screening offers nearly 90% of the
time, and his median screening offer contains 1/6 of the joint surplus from
settlement. Player AL (a plaintiff with a weak case) typically accepts the
screening offer, although she sometimes rejects offers containing less than
1/3 of the settlement surplus. The dispute rate for player AH (a plaintiff with
a strong case) is near the predicted 100%. These results are consistent with
the previous experiments in this setting. In the screening game, the recipient
is the informed party (player A) and she has a fairly trivial decision to make
in deciding whether or not to accept the offer. The sender (player B) has
a more difficult decision, but latching onto the idea of a screening offer
does not appear to be an overly demanding task. Although we do observe
some fairness concerns, they are insufficient to invalidate the qualitative
predictions of the model.
Using the same parameters as in the screening game, we switch the
identity of the player making the offer to create a signaling game. We
believe that this problem is cognitively much more challenging for both
the sender (now player A) and the recipient (now player B). As the sender,
AL has to decide whether she should bluff and what offer would consti-
tute a good bluff, while AH has to decide how much she needs to shade
her offer to ensure a reasonable chance of acceptance. As the recipient,

player B has a difficult decision to make when he is faced with a high offer,
because he cannot be sure whether the offer is a revealing offer from AH

or a bluff by AL . Potentially complicating these decision are concerns for
fairness.
Given these difficulties, we expect, and indeed observe, less adherence
to theory in the signaling game compared to the screening game. Much of
the behavior conforms reasonably well with a semi-pooling equilibrium.
The player B rejection behavior on AL revealing offers and on high offers
(which may be AH separating offers or AL bluffs) is roughly in line with
the semi-pooling prediction. Aside from the “between” offers, the player
A behavior is likewise roughly consistent with the theory. As expected,
AL makes a revealing offer a high percentage of the time, and the median
revealing offer (220) is quite close to the theoretical prediction (225). Player
AH almost always makes an offer which separates her from a revealing AL
player. Twelve percent of AL offers are bluffs that mimic an AH player.
AH and the bluffing AL do not converge on a single offer as they would
in a semi-pooling equilibrium, but it would have been rather miraculous
if they had. There is a continuum of such equilibria, and player feedback
was limited to their own bargaining experience. The most notable deviation
from theory is the acceptance of “between” offers that should be rejected
using fairly straightforward dominance arguments. This violates a weak
refinement concept known as the test of dominated strategies. While the
incidence of these anomalous offers by player AL falls to ~10% in the later
rounds, player B continues to accept ~50% of them.35 Our results contrast
with the labor market experiment of Kübler et al. (2008), who find greater
adherence to the theory in the signaling game relative to the screening
game.
A comparison across the two games indicates that the ability to make the
offer is not nearly as valuable as suggested by theory. The mean increase in
payoffs for player AL from moving from the screening to the signaling game
35. Also note that the refinement D1 is rejected as descriptive of players’ belief
formation. This is in line with other experimental work which has generally rejected the
intuitive criterion, a weaker refinement concept than D1. Here, a primary reason D1 fails
is the defendant’s (player B’s) uniform rejection of very high offers, which forces the
strong AH plaintiff to experiment with offers well below the D1 prediction.
is 30–55% of the predicted amount. This is in part due to the existence of

disputes not predicted by the theory and also because the player making the
offer cannot extract all of the surplus predicted by theory. Overall, we do

observe some distributional effects from changing the identity of the player
who makes the offer, but they are much smaller in practice than they are in
theory.
While the dispute rates are approximately equal in the two games, the
sources of disputes do differ in some important ways. In both games, dis-
putes likely arise because the recipient makes an implicit demand not present
in the theory, which the sender is unwilling to meet and/or unable to observe.
In our data, this occurs more frequently in the screening game. Offsetting
this, however, is the bluffing and unpredicted “between” offers made by AL
players in the signaling game. The high dispute rate on these offers off-
sets the low dispute rate on revealing offers, and the net effect is roughly
equivalent dispute rates across the two games. Consequently, we observe no
major efficiency implications arising from the assignment of which player
is allowed to make the offer.
In the later rounds of our screening experiment, anomalous behavior
essentially disappears. In the later rounds of our signaling game, anoma-
lous offers are significantly reduced, but anomalous acceptance behavior
persists. This is consistent with the idea that the signaling game is more
cognitively demanding. The reduction in anomalous offers indicates that
some learning did occur in the signaling game. In the laboratory, having
players reverse roles might facilitate additional learning, as might public
dissemination of some information on negotiations.
But real-world plaintiffs typically have limited experience in that role and
might never be placed in the role of a defendant. Also, many out-of-court
settlements include non-disclosure clauses, which limit what can be learned
from the bargaining experience of others. This suggests that the behavior
of relatively inexperienced litigants is relevant, even if this inexperience
may be mitigated by the presence of an attorney.36 The omission of contract
36. Generally speaking, professionals do not exhibit a greater adherence to theory

than do undergraduate subjects. In most cases there is no difference between the two
groups. To the extent an edge exists, undergraduates may be slightly more likely to
adhere to theory than professionals. See Davis (2016, Figure 1). The discussion in Davis
draws from the work of Fréchette (2015).
clauses specifying which party makes an offer may reflect the absence of
strong efficiency or distributional effects associated with the identity of the
party making the settlement offer.

Clearly, the signaling model deserves more attention. It is one of the two
informational-based models of pretrial bargaining, but the theory typically
relies on a refinement concept, D1, which is not supported empirically. Thus,
it is vital to gain further data on the actual behavior within this game as this
may help better inform the theory. This, in turn, may allow for sharper pol-
icy recommendations regarding policies such as fee shifting and the role of
costly pretrial discovery. Our experimental design has followed the theory
quite closely, but future experiments may incorporate additional features
which may be important to legal bargaining. This can include greater con-
text (i.e., labeling the players as plaintiff and defendant) and allowing for
free form bargaining in the presence of asymmetric information. The out-
comes of experiments without structured bargaining can then be compared
to the outcomes under the type of structured bargaining typically assumed
in the theory. These empirical comparisons can then help better inform the
theory of pretrial bargaining, and help us better understand the nature of
disputes.
Appendix
Table A1. Offer Regression with Robust Standard Errors
Modela : Offer ijs = β0 + β1 Sig-AL Reveal +β2 Sig-AL Bluff +β3 Sig-AH Separate +μis + εijs
Estimated coefficients Summary statistics
β0 β1 β2 β3 F R2
Estimate 111.6 91.9 305.8 343.3
(std.err.) (3.975) (5.654) (7.230) (7.750) 948.60 0.922
H0 : β i = 0 P = 0.000 P = 0.000 P = 0.000 P = 0.000 P = 0.000 n = 676
Implied mean 111.6b 203.6b 417.5b 454.9b
a
Subscripts: i = offer, j = round, and s = session. Dummy variables: baseline is screening game sender B
and offer 75–225, Sig-AL Reveal = 1 if signaling game sender AL and revealing offer 75–225 (= 0 otherwise),
Sig-AL Bluff = 1 if signaling game sender AL and bluff offer 375–525 (= 0 otherwise), Sig-AH Separate =
1 if signaling game sender AH and separating offer 375–525 (= 0 otherwise). Robust standard errors are
clustered on sessions.
b
For the Offers 75–225 H0 : AL –B = 150 test in Table 4, H0 : β1 = 150 has F = 105.5 (P = 0.000). For the
Offers 375–525 H0 : AL = AH test in Table 4, H0 : β2 = β3 has F = 18.8 (P = 0.019). Corresponding to
the fn. 25 equal surplus difference-in-means test, H0 : β0 – 75 = 225 – (β0 + β1 ) has F = 7.2(P = 0.025).
Table A2. Player A Net Payoff Regression with Robust Standard Errors
Modela,b : Player A net payoffijs = β0 + β1 Sig-AL + β2 Scr-AH + β3 Sig-AH + μis + εijs

Coefficients Summary statistics
β0 β1 β2 β3 F R2
Estimate 130.3 43.7 241.3 256.1
(std. err.) (8.955) (12.628) (9.632) (9.069) 568.52 0.705
H0 : βi = 0 P = 0.000 P = 0.001 P = 0.000 P = 0.000 P = 0.000 n = 810
Implied mean 130.3 174.0 371.5 386.4
a
Subscripts: i = offer, j = round, and s = session. Dummy variables: baseline is screening game player
AL , Sig-AL = 1 if signaling game player AL (= 0 otherwise), Scr-AL = 1 if screening game player AH (= 0
otherwise), Sig-AH = 1 if signaling game player AH (= 0 otherwise). Robust standard errors are clustered
on sessions.
b
Using the empirical frequencies, the implied mean player A payoffs are screening game p(L|scr)(β0 ) +
p(H |scr)(β0 + β2 ) = 215.3 and signaling game p(L|sig)(β0 + β1 ) + p(H |sig)(β0 + β3 ) = 242.7. From
Table 2, p(L|scr) = 0.648, p(H |scr) = 0.352, p(L|sig) = 0.676, and p(H |sig) = 0.324. For the Table 8 H0 :
Diff. = 0 tests, AL test H0 : β1 = 0 has F = 10.96 (P = 0.007), AH test H0 : β2 – β3 = 0 has F = 8.84 (P =
0.016), and player A test p(L|scr)(β0 ) + p(H |scr)(β0 + β2 ) – p(L|sig)(β0 + β2 ) – p(H |sig)(β0 + β3 ) = 0 has
F = 9.43 (P = 0.013). For Table 8 tests H0 : Diff. = Pred., AL test H0 : β1 = 150 has F = 70.9 (P = 0.000),
AH test H0 : β2 – β3 = 50 has F = 49.3 (P = 0.000), and player A test p(L|scr)(β0 ) + p(H |scr)(β0 + β2 ) –
p(L|sig)(β0 + β2 ) – p(H |sig)(β0 + β3 ) = 117 has F = 262.4 (P = 0.000).
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An Empirical Analysis of The Signaling and

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We present an experimental analysis of the signaling and screening models of lit-

Asymmetric information is a leading explanation for the existence of

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There is a large literature in law and economics where trials are an

bargaining in which disputes result from asymmetric information. The

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The screening model we describe is a simpliﬁed version of Bebchuk

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3.1. The Screening Game

0. Nature determines player A’s type which is AH with probability q

11. We present a two-type signaling model. For a complete analysis of such a

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OBL = J L − CA = 75, (1a)

(1 − q)OBL + q(J H + CB ) < OBH . (2)

3.2. The Signaling Game

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OAL = J L + CB = 225, (4a)

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OAS − J L − CB OAS − 225

then player B is indifferent between accepting or rejecting OAS . The semi-

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Table 1. Predictions by Game Type

Game Sender: offer Dispute rate A’s payoff Recipient decision

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could range from no difference (both 33%) to 11 percentage points lower in

Analogous reasoning applies in the signaling game. In the signaling game,

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Collectively, we refer to subjects’ offers in these intervals as “consistent

Between offer: An offer by either player in the interval 226 O 374.

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Table 2 summarizes the ten sessions in our experimental design, ﬁve

Table 2. Experimental Design

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to player A. In all sessions the strangers matching protocol is used, with

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0. A six-sided die is rolled privately for each Player A, where a roll of

1 . Player A decides on an offer to submit to Player B. This offer may

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We ﬁrst present data on offer behavior, and we then analyze dispute

5.1. Offer Behavior

Table 3. Offer Frequency Distributions

Proportion (number) of offers in speciﬁed interval

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anomalous offers (Section 5.2). Ninety percent of the player AH signaling

Table 4. Offers Consistent with Theory

Player type and offer interval Offers 75–225 Offers 375–525

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surplus.25 The difference of 92 is 61% of the predicted amount. The median

Table 5. AL v. B Dispute Rates

Proportion of disputes (number of offers) in speciﬁed interval

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5.2. Dispute Behavior

Table 6. AH v. B Dispute Rates

Proportion of disputes (number of offers) in speciﬁed interval

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predicted on these offers. Perhaps one consequence of this is the decline in

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Table 7. Comparison of Dispute Rates Across Games

Dispute rates for all rounds, all offers