# Talk:Bargaining problem

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## more comprehensive approach

Within the game theoretic literature that I'm familiar with, bargaining is addressed as the bargaining problem. Also the Nash Bargaining Game seems to be the ultimatum game in disguise. Clearly something major needed to be done with that article so here is my first attempt to make a more comprehensive approach to the bargaining problem. The change was so major that I didn't want to clobber the existing Nash bargaining game entry. Allliam (talk) 01:05, 3 May 2008 (UTC)

## why does bargaining set link here?

I was surprised to get to this page when I entered "bargaining set" into the search field. To my knowledge, the cooperative solution concept of a bargaining set, as originally put forward by Davis and Maschler, has no particular connection with the Nash bargaining problem. F. Biermann — Preceding unsigned comment added by 79.179.0.144 (talk) 20:23, 21 August 2011 (UTC)

## Serious editing needed!

a) It refers to multiple things at once, none of which is addressed properly! The Nash bargaining problem is a special case of a general bargaining problem! It is by far not the only bargaining problem out there. The whole set of constraints on the problem and the pareto-efficiency make no sense at all in the context of the general bargaining problem. b) The general structure of the article is confusing which makes the article is barely understandable EVEN for someone with general knowledge in game theory. --Necmon (talk) 01:12, 29 June 2012 (UTC)

Dr. Herings has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

The two-person bargaining problem is a problem of understanding how two agents should cooperate when non-cooperation leads to Pareto-inefficient results. It is in essence an equilibrium selection problem; many games have multiple equilibria with varying payoffs for each player, forcing the players to negotiate on which equilibrium to target. Solutions to bargaining come in two flavors: an axiomatic approach where desired properties of a solution are satisfied and a strategic approach where the bargaining procedure is modeled in detail as a sequential game.

This entire paragraph is rather confusing. The bargaining problem is not about understanding how two agents should cooperate, but rather how they share a surplus that they can jointly generate. It is not about an equilibrium selection problem (a sentence that already assumes a strategic approach is taken), but rather a payoff selection problem. Solutions do not really come in two flavors. Rather, there are two questions one can study. The first one is: How should the surplus be shared. The second one is: How will the surplus be shared. I suggest the following replacement:

The two-person bargaining problem studies how two agents share a surplus that they can jointly generate. It is in essence a payoff selection problem. In many cases, the surplus created by the two players can be shared in many ways, forcing the players to negotiate which division of payoffs to choose. There are two typical approaches to the bargaining problem. A normative approach that studies how the surplus should be shared. The normative approach formulates appealing axioms that the solution to a bargaining problem should satisfy. The positive approach answers the question how the surplus will be shared. Under the positive approach, the bargaining procedure is modeled in detail as a non-cooperative game.

The bargaining game

The bargaining game or Nash bargaining game is a simple two-player game used to model bargaining interactions. In the Nash bargaining game, two players demand a portion of some good (usually some amount of money). If the total amount requested by the players is less than that available, both players get their request. If their total request is greater than that available, neither player gets their request. A Nash bargaining solution is a Pareto efficient solution to a Nash bargaining game. According to Walker,[1] Nash's bargaining solution was shown by John Harsanyi to be the same as Zeuthen's solution[2] of the bargaining problem.

Suggested improvement:

The bargaining game

The Nash bargaining solution is the unique solution to a two-person bargaining problem that satisfies the axioms of scale invariance, symmetry, efficiency, and independence of irrelevant alternatives. According to Walker,[1] Nash's bargaining solution was shown by John Harsanyi to be the same as Zeuthen's solution[2] of the bargaining problem.

The Nash bargaining game is a simple two-player game used to model bargaining interactions. In the Nash bargaining game, two players demand a portion of some good (usually some amount of money). If the total amount requested by the players is less than that available, both players get their request. If their total request is greater than that available, neither player gets their request.

Nash (1953) presents a non-cooperative demand game with two players who are uncertain about which payoff pairs are feasible. In the limit as the uncertainty vanishes, equilibrium payoffs converge to those predicted by the Nash bargaining solution. J.F. Nash, Two-person cooperative games, Econometrica 21 (1953) 128–140.

Formal description

A two-person bargain problem consists of: A feasibility set F {\displaystyle F} F, a closed convex subset of R 2 {\displaystyle \mathbb {R} ^{2

\mathbb {R} ^{2}, the elements of which are interpreted as agreements. Set F {\displaystyle F} F is convex because an agreement could take the form of a correlated combination of other agreements.

A disagreement, or threat, point d = ( d 1 , d 2 ) {\displaystyle d=(d_{1},d_{2})} d=(d_1, d_2), where d 1 {\displaystyle d_{1}} d_{1} and d 2 {\displaystyle d_{2}} d_{2} are the respective payoffs to player 1 and player 2.

The problem is nontrivial if agreements in F {\displaystyle F} F are better for both parties than the disagreement. The goal of bargaining is to choose the feasible agreement ϕ {\displaystyle \phi } \phi in F {\displaystyle F} F that could result from negotiations.

Comments: Although this is often assumed, the feasibility set is not necessarily convex. The problem is non-trivial if some agreements in F are better for both parties than the disagreement point. A solution to the bargaining problem selects an agreement \phi in F.

Feasibility set

Which agreements are feasible depends on whether bargaining is mediated by an additional party: When binding contracts are allowed, any joint action is playable, and the feasibility set consists of all attainable payoffs better than the disagreement point. When binding contracts are unavailable, the players can defect (moral hazard), and the feasibility set is composed of correlated equilibria, since these outcomes require no exogenous enforcement.

Comment: The interpretation in case no binding contracts are available is questionable.

Alternatively, each player could play a minimax strategy in case of disagreement, choosing to disregard personal reward in order to hurt the opponent as much as possible should the opponent leave the bargaining table.

Comment: The use of the minimax strategy to determine the disagreement point is not a widely accepted modeling choice.

Equilibrium analysis

Strategies are represented in the Nash bargaining game by a pair (x, y). x and y are selected from the interval [d, z], where d is the disagreement outcome and z is the total amount of good. If x + y is equal to or less than z, the first player receives x and the second y. Otherwise both get d; often d = 0 {\displaystyle d=0} d=0.

There are many Nash equilibria in the Nash bargaining game. Any x and y such that x + y = z is a Nash equilibrium. If either player increases their demand, both players receive nothing. If either reduces their demand they will receive less than if they had demanded x or y. There is also a Nash equilibrium where both players demand the entire good. Here both players receive nothing, but neither player can increase their return by unilaterally changing their strategy.

Comment: It is not the Nash bargaining game, but the Nash demand game. It would be natural to also discuss the approach of Rubinstein (1982) to the two-person bargaining problem. Rubinstein (1982) provides another non-cooperative game in which two players negotiate on the division of a surplus known as the alternating offers bargaining game. The players take turns acting as the proposer. The division of the surplus in the unique subgame perfect equilibrium depends upon how strongly players prefer current over future payoffs. In the limit as players become perfectly patient, the equilibrium division converges to the Nash bargaining solution.

Nash proved that the solutions satisfying these axioms are exactly the points ( x , y ) {\displaystyle (x,y)} (x,y) which maximize the following expression: ( u ( x ) − u ( d ) ) ( v ( y ) − v ( d ) ) {\displaystyle (u(x)-u(d))(v(y)-v(d))} (u(x)-u(d))(v(y)-v(d))

Comment: It should be required that (x,y) belongs to F.

Intuitively, the solution consists of each player getting her status quo payoff (i.e., noncooperative payoff) in addition to an equal share of the benefits occurring from cooperation.

Comment: Depending on the set F, the benefits from cooperation may not be shared equally.

The Nash bargaining solution can be explained as the result of the following bargaining process:[5]:301-302 A current agreement, say ( x , y ) {\displaystyle (x,y)} (x,y), is on the table. One of the players, say player 2 can raise an objection. An objection is an alternative agreement, ( x ′ , y ′ ) {\displaystyle (x',y')} (x',y'). Probably, the alternative agreement is better for player 2 (y ′ > y {\displaystyle y'>y} y'>y) and worse for player 1 (x ′ < x {\displaystyle x'<x} x'<x). Raising such an objection has some probability of ending the negotiation. This probability, p {\displaystyle p} p, can be selected by player 2 (e.g, by the amount of pressure he puts on player 1 to agree). The objection is effective only if p ⋅ y ′ ≻ 2 y {\displaystyle p\cdot y'\succ _{2}y} p\cdot y' \succ_2 y, i.e, player 2 prefers the alternative agreement y ′ {\displaystyle y'} y' with a chance p {\displaystyle p} p, over the original agreement y {\displaystyle y} y for sure. Player 1 can then raise a counter-objection by claiming that for him, p ⋅ x ⪰ 1 x ′ {\displaystyle p\cdot x\succeq _{1}x'} p\cdot x \succeq_1 x'. This means that player 1 prefers to insist on the original agreement even if this might blow up the negotiation; player 1 prefers the original agreement x {\displaystyle x} x with a chance p {\displaystyle p} p, over the alternative agreement x ′ {\displaystyle x'} x' for sure. An agreement ( x , y ) {\displaystyle (x,y)} (x,y) is a Nash-bargaining-solution if, for every objection raised by one of the players, there is a counter-objection by the other player. It is an agreement which is robust to objections.

Comment: This part is not sufficiently precise and therefore hard to follows.

Kalai–Smorodinsky bargaining solution

Main article: Kalai–Smorodinsky bargaining solution

Independence of Irrelevant Alternatives can be substituted with a Resource monotonicity axiom. This was demonstrated by Ehud Kalai and Meir Smorodinsky.[6] This leads to the so-called Kalai–Smorodinsky bargaining solution: it is the point which maintains the ratios of maximal gains. In other words, if player 1 could receive a maximum of g 1 {\displaystyle g_{1}} g_{1} with player 2’s help (and vice versa for g 2 {\displaystyle g_{2}} g_{2}), then the Kalai–Smorodinsky bargaining solution would yield the point ϕ {\displaystyle \phi } \phi on the Pareto frontier such that ϕ 1 / ϕ 2 = g 1 / g 2 {\displaystyle \phi _{1}/\phi _{2}=g_{1}/g_{2}} \phi _{1}/\phi _{2}=g_{1}/g_{2} .

Comment: It should be added that now the disagreement point has been normalized to (0,0).

Applications

Some philosophers and economists have recently used the Nash bargaining game to explain the emergence of human attitudes toward distributive justice.[8][9][10][11] These authors primarily use evolutionary game theory to explain how individuals come to believe that proposing a 50–50 split is the only just solution to the Nash bargaining game.

Comment: References [8] and [9] are not sufficiently important to mention in an article that only presents the major highlights of the two-person bargaining problem.

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We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Herings has expertise on the topic of this article, since he has published relevant scholarly research:

• Reference : Herings P.J.J., 2015. "Equilibrium and matching under price controls," Research Memorandum 001, Maastricht University, Graduate School of Business and Economics (GSBE).

ExpertIdeasBot (talk) 16:25, 11 July 2016 (UTC)