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On risk aversion and bargaining outcomes

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  • Volij, Oscar
  • Winter, Eyal

Abstract

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.
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  • Volij, Oscar & Winter, Eyal, 2002. "On risk aversion and bargaining outcomes," Games and Economic Behavior, Elsevier, vol. 41(1), pages 120-140, October.
    • Handle: RePEc:eee:gamebe:v:41:y:2002:i:1:p:120-140
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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Roth, Alvin E, 1985. "A Note on Risk Aversion in a Perfect Equilibrium Model of Bargaining," Econometrica, Econometric Society, vol. 53(1), pages 207-211, January.
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    Cited by:

    1. Cressman, Ross & Gallego, Maria, 2009. "On the ranking of bilateral bargaining opponents," Mathematical Social Sciences, Elsevier, vol. 58(1), pages 64-83, July.
    2. Driesen, Bram & Lombardi, Michele & Peters, Hans, 2016. "Feasible sets, comparative risk aversion, and comparative uncertainty aversion in bargaining," Journal of Mathematical Economics, Elsevier, vol. 67(C), pages 162-170.
    3. Volij, Oscar, 2002. "A remark on bargaining and non-expected utility," Mathematical Social Sciences, Elsevier, vol. 44(1), pages 17-24, September.
    4. Philip Grech & Oriol Tejada, 2018. "Divide the dollar and conquer more: sequential bargaining and risk aversion," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(4), pages 1261-1286, November.
    5. Zhongwei Feng & Chunqiao Tan & Jinchun Zhang & Qiang Zeng, 2021. "Bargaining Game with Altruistic and Spiteful Preferences," Group Decision and Negotiation, Springer, vol. 30(2), pages 277-300, April.
    6. Kohlscheen, Emanuel & O’Connell, Stephen, 2008. "On Risk Aversion in the Rubinstein Bargaining Game," The Warwick Economics Research Paper Series (TWERPS) 878, University of Warwick, Department of Economics.
    7. Zhang, Jing & Zhuang, Jun & Jose, Victor Richmond R., 2018. "The role of risk preferences in a multi-target defender-attacker resource allocation game," Reliability Engineering and System Safety, Elsevier, vol. 169(C), pages 95-104.
    8. Huang, Rachel J. & Huang, Yi-Chieh & Tzeng, Larry Y., 2013. "Insurance bargaining under ambiguity," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 812-820.
    9. Nir Dagan & Oscar Volij & Eyal Winter, 2001. "The Time-Preference Nash Solution," Economic theory and game theory 014, Oscar Volij.
    10. Zhongwei Feng & Yan Ma & Yuzhong Yang, 2023. "Credibilistic Cournot Game with Risk Aversion under a Fuzzy Environment," Mathematics, MDPI, vol. 11(4), pages 1-18, February.
    11. Rausser, Gordon C. & Simon, Leo K., 2016. "Nash bargaining and risk aversion," Games and Economic Behavior, Elsevier, vol. 95(C), pages 1-9.
    12. Rosato, Antonio, 2017. "Sequential negotiations with loss-averse buyers," European Economic Review, Elsevier, vol. 91(C), pages 290-304.
    13. Anna Conte & Werner Güth & Paul Pezanis-Christou, 2017. "More Money vs More Certainty? Behaviour in Stochastic Alternating-Offer Experiments," School of Economics and Public Policy Working Papers 2017-06, University of Adelaide, School of Economics and Public Policy.

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    More about this item

    JEL classification:

    • C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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