On the Nash Bargaining Solution with Noise

W. Güth, K. Ritzberger, E.E.C. van Damme

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Abstract

Suppose two parties have to share a surplus of random size.Each of the two can either commit to a demand prior to the realization of the surplus - as in the Nash demand game with noise - or remain silent and wait until the surplus was publicly observed.Adding the strategy to wait to the noisy Nash demand game results in two strict equilibria, in each of which one player takes almost the whole surplus, provided uncertainty is small.If commitments concern only who makes the first offer, the more balanced Nash bargaining solution is approximately restored.In all cases commitment occurs in equilibrium, even though this entails the risk of breakdown of negotiations.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages23
Volume2002-79
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-79

Fingerprint

Surplus
Nash bargaining solution
Nash demand game
Breakdown
Uncertainty

Keywords

  • bargaining
  • uncertainty
  • game theory

Cite this

Güth, W., Ritzberger, K., & van Damme, E. E. C. (2002). On the Nash Bargaining Solution with Noise. (CentER Discussion Paper; Vol. 2002-79). Tilburg: Microeconomics.
Güth, W. ; Ritzberger, K. ; van Damme, E.E.C. / On the Nash Bargaining Solution with Noise. Tilburg : Microeconomics, 2002. (CentER Discussion Paper).
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Güth, W, Ritzberger, K & van Damme, EEC 2002 'On the Nash Bargaining Solution with Noise' CentER Discussion Paper, vol. 2002-79, Microeconomics, Tilburg.

On the Nash Bargaining Solution with Noise. / Güth, W.; Ritzberger, K.; van Damme, E.E.C.

Tilburg : Microeconomics, 2002. (CentER Discussion Paper; Vol. 2002-79).

Research output: Working paperDiscussion paperOther research output

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N2 - Suppose two parties have to share a surplus of random size.Each of the two can either commit to a demand prior to the realization of the surplus - as in the Nash demand game with noise - or remain silent and wait until the surplus was publicly observed.Adding the strategy to wait to the noisy Nash demand game results in two strict equilibria, in each of which one player takes almost the whole surplus, provided uncertainty is small.If commitments concern only who makes the first offer, the more balanced Nash bargaining solution is approximately restored.In all cases commitment occurs in equilibrium, even though this entails the risk of breakdown of negotiations.

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Güth W, Ritzberger K, van Damme EEC. On the Nash Bargaining Solution with Noise. Tilburg: Microeconomics. 2002. (CentER Discussion Paper).