On Risk Aversion and Bargaining Outcomes
We revisit the well known result that asserts that and increase in the degree of one's risk aversion improves the position one's opponents. for this purpose, we apply Yaari's dual theory of choice under risk both to Nash's bargaining problem and to Rubinstein's game of alternating offers. Within this theory and unlike under expected utility, risk aversion influences the bargaining outcome only when this outcome is random, namely, when the players are risk lovers. In this case, an increase in ones degree of risk aversion, increases one's share of the pie.
|Date of creation:||06 Sep 1999|
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|Publication status:||Published in Games and Economic Behavior 41(1), 120-140, (2002)|
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