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Complexity and Efficiency in Repeated Games with Negotiation

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  • Hamid Sabourian
  • Jihong Lee

Abstract

This paper considers the "negotiation game" (Busch and Wen, 1995) which combines the features of two-person alternating offers bargaining and repeated games. Despite the forces of bargaining, the negotiation game in general admits a large number of equilibria some of which involve delay in agreement and inefficiency. In order to isolate equilibria in this game, we explicitly consider the complexity of implementing a strategy, introduced in the literature on repeated games played by automata. It turns out that when the players have a preference for less complex strategies (even at the margin) only efficient equilibria survive. Thus, complexity and bargaining in tandem may offer an explanation for co-operation in repeated games

Suggested Citation

  • Hamid Sabourian & Jihong Lee, 2004. "Complexity and Efficiency in Repeated Games with Negotiation," Econometric Society 2004 Far Eastern Meetings 401, Econometric Society.
    • Handle: RePEc:ecm:feam04:401
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    References listed on IDEAS

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    1. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
    2. Fernandez, Raquel & Glazer, Jacob, 1991. "Striking for a Bargain between Two Completely Informed Agents," American Economic Review, American Economic Association, vol. 81(1), pages 240-252, March.
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    7. Piccione, M. & Rubinstein, A., 1992. "Finite Automata Play A Repeated Extensive Game," Papers 5-92, Tel Aviv.
    8. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, December.
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    13. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
    14. Ken Binmore & Michele Piccione & Larry Samuelson, "undated". "Evolutionary Stability in Alternating-Offers Bargaining Games," ELSE working papers 041, ESRC Centre on Economics Learning and Social Evolution.
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    Cited by:

    1. Lee, Jihong & Sabourian, Hamid, 2007. "Coase theorem, complexity and transaction costs," Journal of Economic Theory, Elsevier, vol. 135(1), pages 214-235, July.
    2. Jihong Lee & Hamid Sabourian, 2005. "Efficiency in Negotiation: Complexity and Costly Bargaining," Birkbeck Working Papers in Economics and Finance 0505, Birkbeck, Department of Economics, Mathematics & Statistics.

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    More about this item

    Keywords

    Negotiation Game; Repeated Game; Bargaining; Complexity; Bounded Rationality; Automaton;
    All these keywords.

    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

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