Evolutionary Stability in Alternatin-Offers Bargaining Games
This paper characterizes modified evolutiona.rily stable strategies (MESSes) in Rubinstein's alternatingoffers, infinite- horizon bargaining game. The MESS concept modifies the idea of an neutrally stable strategy by favoring a simple strategy over a more complex strategy when both yield the same pay-off. Our complexity notion is weaker than the common practice of counting states in automata. If strategy A is a MESS, then the use of A by both play- ers is a Nash equilibrium in which an agreement is achieved immediately, and neither player would be willing to delay the agreement by one period in order to achieve the other player's share of the surplus. Each player's share of the surplus is then bounded between the shares received by the two players in the unique subgame-perfect equilibrium of Rubinstein's game. As the probability of a breakdown in negotiations becomes small (or discount factors become large), these bounds collapse on the subgame-perfect equilib- rium. These results continue to hold when offers must be made in multiples of a smallest monetary unit.
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- Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November.
- Banks, Jeffrey S. & Sundaram, Rangarajan K., 1990.
"Repeated games, finite automata, and complexity,"
Games and Economic Behavior,
Elsevier, vol. 2(2), pages 97-117, June.
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