The Kalai-Smorodinsky bargaining solution with loss aversion
We consider bargaining problems under the assumption that players are loss averse, i.e., experience disutility from obtaining an outcome lower than some reference point. We follow the approach of Shalev (2002) by imposing the self-supporting condition on an outcome: an outcome z in a bargaining problem is self-supporting under a given bargaining solution, whenever transforming the problem using outcome z as a reference point, yields a transformed problem in which the solution is z. We show that n-player bargaining problems have a unique self-supporting outcome under the Kalai-Smorodinsky solution. For all possible loss aversion coefficients we determine the bargaining solutions that give exactly these outcomes, and characterize them by the standard axioms of Scale Invariance, Individual Monotonicity, and Strong Individual Rationality, and a new axiom called Proportional Concession Invariance (PCI). A bargaining solution satisfies PCI if moving the utopia point in the direction of the solution outcome does not change this outcome.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- SHALEV, Jonathan, 1997.
"Loss aversion and bargaining,"
CORE Discussion Papers
1997006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Kobberling, Veronika & Wakker, Peter P., 2005. "An index of loss aversion," Journal of Economic Theory, Elsevier, vol. 122(1), pages 119-131, May.
- SHALEV, Jonathan, 1997.
"Loss aversion equilibrium,"
CORE Discussion Papers
1997023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Peters, Hans, 2012.
"A preference foundation for constant loss aversion,"
Journal of Mathematical Economics,
Elsevier, vol. 48(1), pages 21-25.
- Peters Hans, 2010. "A preference foundation for constant loss aversion," Research Memorandum 062, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
- Botond Koszegi & Matthew Rabin, 2004.
"A Model of Reference-Dependent Preferences,"
Method and Hist of Econ Thought
- Botond Koszegi & Matthew Rabin, 2005. "A Model of Reference-Dependent Preferences," Levine's Bibliography 784828000000000341, UCLA Department of Economics.
- Koszegi, Botond & Rabin, Matthew, 2004. "A Model of Reference-Dependent Preferences," Department of Economics, Working Paper Series qt0w82b6nm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Sugden, Robert, 2003. "Reference-dependent subjective expected utility," Journal of Economic Theory, Elsevier, vol. 111(2), pages 172-191, August.
- Peters, H.J.M. & Tijs, S.H., 1984. "Individually monotonic bargaining solutions of n-person bargaining games," Other publications TiSEM 94ffcb19-a0bc-4364-a42e-7, Tilburg University, School of Economics and Management.
- van Damme, E.E.C. & Peters, H., 1991. "Characterizing the Nash and Raiffa bargaining solutions by disagreement point axioms," Other publications TiSEM 4bd5eb9e-328a-45a0-aa0a-e, Tilburg University, School of Economics and Management.
- Kannai, Yakar, 1977. "Concavifiability and constructions of concave utility functions," Journal of Mathematical Economics, Elsevier, vol. 4(1), pages 1-56, March.
- Peters Hans & Köbberling Vera, 2000.
"The Effect of Decision Weights in Bargaining Problems,"
037, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Kobberling, Veronika & Peters, Hans, 2003. "The effect of decision weights in bargaining problems," Journal of Economic Theory, Elsevier, vol. 110(1), pages 154-175, May.
When requesting a correction, please mention this item's handle: RePEc:eee:matsoc:v:61:y:2011:i:1:p:58-64. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.