October 31 2025, 2:30 PM
Laura Razzolini, Culverhouse College of Business - University of Alabama
Strategic Misreporting in Wage Negotiations
Abstract
We examine wage negotiations using an ultimatum game with a real-effort task, introducing an “outside obligation” where employees must allocate 0 to 50 percent of their earnings to a third party. Employees can report their obligation via cheap talk and propose a wage split, while employers make counteroffers. If accepted, the employee completes the task of generating the surplus; if rejected, both parties complete the task for a small payment. We find frequent misreporting, with 80 percent of employees overreporting when their obligation is zero. Men exaggerate their obligations more often than women, who also overstate but to a lesser extent. Employers increase offers when they believe the reported obligation but when skeptical, they make offers similar to those in settings with no information. However, employers fail to anticipate men’s greater misreporting, leading them to respond in ways that unintentionally contribute to a gender wage gap, despite exhibiting no explicit gender bias.