Bilateral Bargaining in an Ambiguous Environment
AbstractWe perturb the bilateral bargaining model by introducing small ambiguity (via the epsilon contamination model) about the agents' types. We assume that the preferences are characterized by ambiguity aversion (Gilboa-Schmeidler). The rest of the setup is exactly as in Myerson and Satterthwaite . And we show that in this environment, it is possible to design a mechanism that generates almost-efficient trade. Crucially, the mechanism has to be extensive-form; standard (normal form) direct revelation mechanism can only generate outcome that is continuous with respect to the amount of ambiguity.
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Bibliographic InfoPaper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 12/10.
Date of creation: May 2012
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Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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