Escalation Game with Endogenous Demands and The Nash Bargaining Solution
AbstractThe paper examines the behavior of two agents who need to make a joint decision but they have conflicting preferences about the choice of the outcome. Conventionally such problem is considered as the bargaining problem described as the situation of dividing a pie. But we introduce the model that sheds a different light on the problem in question. The problem is described as the conflict situation modelled as a two-stage game. In the first stage players propose outcomes. The settlement is made if the proposed outcomes are the same. If not, the game moves onto the second stage where they play the concession game called the escalation game. In the escalation game, each player, in turn, has the choice between either to submit by accepting the other’s demand or to escalate by way of insisting his demand to be accepted. Each escalation generates a probability of an inefficient outcome. There are two main findings: (1) it is shown that the player’s decision is determined by his risk limit which measures his intensity towards winning. (2) if the escalation game allocates the demand of the player with the highest risk limit, then players propose the Nash cooperative solution.
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Bibliographic InfoPaper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 0709.
Date of creation: 2007
Date of revision:
Bargaining; Risk Limit; Nash Bargaining Solution;
Find related papers by JEL classification:
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-10 (All new papers)
- NEP-GTH-2007-11-10 (Game Theory)
- NEP-MIC-2007-11-10 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ariel Rubinstein, 2010.
"Perfect Equilibrium in a Bargaining Model,"
Levine's Working Paper Archive
661465000000000387, David K. Levine.
- Ordover, Janusz A & Rubinstein, Ariel, 1986. "A Sequential Concession Game with Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 101(4), pages 879-88, November.
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