Kohlscheen, Emanuel and O’Connell, Stephen A. (2008) On risk aversion in the Rubinstein bargaining game. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers).

Preview

PDF WRAP_Kohlscheen_twerp_878.pdf - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader Download (168Kb)

Abstract

We derive closed-form solutions for the Rubinstein alternating offers game for cases where the two players have (possibly asymmetric) utility functions that belong to the HARA class and discount the future at a constant rate. We show that risk aversion may increase a bargainers payoff. This result - which contradicts Roth’s 1985 theorem tying greater risk neutrality to a smaller payoff - does not rely on imperfect information or departures from expected utility maximization.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HB Economic Theory Q Science > QA Mathematics
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Game theory, Risk, Utility theory -- Mathematical models, Negotiation
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	October 2008
Number:	No.878
Number of Pages:	15
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
References:	[1] Binmore, K. (2007a) Does game theory work? The bargaining challenge. Cambridge, MA. MIT Press. [2] Binmore, K. (2007b), Playing for real: A text on game theory. Oxford: Oxford University Press. [3] Binmore, K. (1987a) Nash bargaining theory II. In K. Binmore and P. Dasgupta (eds.) The Economics of Bargaining. Basil Blackwell. Oxford. 61-76. [4] Binmore (1987b) Perfect equilibria in bargaining models. In K. Binmore and P. Dasgupta (eds.) The Economics of Bargaining. Basil Blackwell. Oxford. 77-105. [5] Binmore, K. G., M. J. Osborne, and A. Rubinstein (1992) Noncooperative models of bargaining. In R. J. Aumann and S. Hart, eds, Handbook of game theory with economic applications. Volume 1. Handbooks in Economics, vol. 11. Amsterdam; London and Tokyo: North-Holland; distributed in the U.S. and Canada by Elsevier Science, New York: 179-225. [6] Binmore, K. G., A. Rubinstein, and A. Wolinsky (1986) The Nash bargaining solution in economic modelling. The Rand Journal of Economics, vol. 17. 176-88. [7] Bulow, J., K. Rogoff (1989) A constant recontracting model of sovereign debt. Journal of Political Economy, 97, 1, 155-78. [8] Merton, R. C. (1971) Optimum consumption and portfolio rules in a continuous-time model. Journal of Economic Theory 3, 373-413. [9] Muthoo, A. (1996) Bargaining theory with applications. Cambridge University Press. [10] Osborne, M. (1984) The role of risk aversion in a simple bargaining model. In Roth, A. (ed.) Game Theoretic Models of Bargaining, 181-213. [11] Roth, A. (1985) A note on risk aversion in a perfect equilibrium model of bargaining. Econometrica 53, 207-11. [12] Roth, A. (1989) Risk aversion and the relation between Nash’ solution and subgame perfect equilibrium of sequential bargaining. Journal of Risk and Uncertainty 2, 353-65. [13] Roth, A. and Rothblum (1982) Risk aversion and Nash’s solution for bargaining games with risky outcomes. Econometrica 50, 639-47. [14] Rubinstein, A. (1982) Perfect equilibrium in a bargaining model. Econometrica 50, 97-110. [15] Shaked, A. and J. Sutton (1984), Involuntary unemployment as a perfect equilibrium in a bargaining model. Econometrica 52, 1351-64. [16] Volij and Winter (2002) On risk aversion and bargaining outcomes. Games and Economic Behaviour 41, 1, 120-40.
URI:	http://wrap.warwick.ac.uk/id/eprint/1339

Request changes to a record

Actions (login required)

View Item