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A projected gradient dynamical system modeling the dynamics of bargaining

Listed author(s):
  • D. Pinheiro
  • A. A. Pinto
  • S. Z. Xanthopoulos
  • A. N. Yannacopoulos

We propose a projected gradient dynamical system as a model for a bargaining scheme for an asset for which the two interested agents have personal valuations which do not initially coincide. The personal valuations are formed using subjective beliefs concerning the future states of the world and the reservation prices are calculated using expected utility theory. The agents are not rigid concerning their subjective probabilities and are willing to update them under the pressure to reach finally an agreement concerning the asset. The proposed projected dynamical system, on the space of probability measures, provides a model for the evolution of the agents beliefs during the bargaining period and is constructed so that agreement is reached under the minimum possible deviation of both agents from their initial beliefs. The convergence results are shown using techniques from convex dynamics and Lyapunov function theory.

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Paper provided by in its series Papers with number 1105.1767.

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Date of creation: May 2011
Date of revision: Sep 2011
Handle: RePEc:arx:papers:1105.1767
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  1. Lampros Boukas & Diogo Pinheiro & Alberto Pinto & Stylianos Xanthopoulos & Athanasios Yannacopoulos, 2009. "Behavioural and Dynamical Scenarios for Contingent Claims Valuation in Incomplete Markets," Papers 0903.3657,
  2. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
  3. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
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