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On Risk Aversion in the Rubinstein Bargaining Game

  • Kohlscheen, Emanuel

    (Department of Economics, University of Warwick,)

  • O’Connell, Stephen

    (Department of Economics, Swarthmore College,)

We derive closed-form solutions for the Rubinstein alternating offers game for cases where the two players have (possibly asymmetric) utility functions that belong to the HARA class and discount the future at a constant rate. We show that risk aversion may increase a bargainers payoff. This result - which contradicts Roth’s 1985 theorem tying greater risk neutrality to a smaller payoff - does not rely on imperfect information or departures from expected utility maximization.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp_878.pdf
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Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 878.

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Length: 15 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:wrk:warwec:878
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Web page: http://www2.warwick.ac.uk/fac/soc/economics/

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  1. Binmore, K. & Osborne, M.J. & Rubinstein, A., 1989. "Noncooperative Models Of Bargaining," Papers 89-26, Michigan - Center for Research on Economic & Social Theory.
  2. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  3. Roth, Alvin E, 1985. "A Note on Risk Aversion in a Perfect Equilibrium Model of Bargaining," Econometrica, Econometric Society, vol. 53(1), pages 207-11, January.
  4. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 661465000000000387, David K. Levine.
  5. Volij, Oscar & Winter, Eyal, 2002. "On risk aversion and bargaining outcomes," Games and Economic Behavior, Elsevier, vol. 41(1), pages 120-140, October.
  6. Roth, Alvin E, 1989. " Risk Aversion and the Relationship between Nash's Solution and Subgame Perfect Equilibrium of Sequential Bargaining," Journal of Risk and Uncertainty, Springer, vol. 2(4), pages 353-65, December.
  7. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-64, November.
  8. Roth, Alvin E & Rothblum, Uriel G, 1982. "Risk Aversion and Nash's Solution for Bargaining Games with Risky Outcomes," Econometrica, Econometric Society, vol. 50(3), pages 639-47, May.
  9. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
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