Prudence in Bargaining: The Effect of Uncertainty on Bargaining Outcomes
AbstractWe investigate the outcome of bargaining when a player’s pay-off from agreement is risky. We find that a risk-averse player typically increases his equilibrium receipts when his pay-off is made risky. This is because the presence of risk makes individuals behave 'more patiently' in bargaining. Strong analogies are drawn to the precautionary saving literature. We show that the effect of risk on receipts can be sufficiently strong that a decreasingly risk-averse player may be better off receiving a risky pay-off than a certain pay-off.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5822.
Date of creation: Sep 2006
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Find related papers by JEL classification:
- C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-28 (All new papers)
- NEP-GTH-2006-10-28 (Game Theory)
- NEP-UPT-2006-10-28 (Utility Models & Prospect Theory)
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