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Prudence in Bargaining: The Effect of Uncertainty on Bargaining Outcomes


  • White, Lucy


We 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.

Suggested Citation

  • White, Lucy, 2006. "Prudence in Bargaining: The Effect of Uncertainty on Bargaining Outcomes," CEPR Discussion Papers 5822, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5822

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    References listed on IDEAS

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    Cited by:

    1. Matthew Embrey & Kyle Hyndman & Arno Riedl, 2014. "Bargaining with a Residual Claimant: An Experimental Study," CESifo Working Paper Series 5087, CESifo Group Munich.
    2. White, Lucy, 2008. "Prudence in bargaining: The effect of uncertainty on bargaining outcomes," Games and Economic Behavior, Elsevier, vol. 62(1), pages 211-231, January.

    More about this item


    Nash bargaining; prudence; risk aversion; Rubinstein bargaining;

    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

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