On Risk Aversion in the Rubinstein Bargaining Game
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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