Bargaining

Question 1

What are some examples of negotiating players?

Answer 1

• Buyers and Sellers
• Business partners
• Legal disputes
• Governments

Question 2

What does non-cooperative game theory involve?

Answer 2

Non - cooperative game theory involves players that seek to maximise their individual payoffs

Question 3

What is cooperative game theory?

Answer 3

Game theory which involves players being able to enforce binding agreements through an arbitrator allowing them to obtain non equilibrium outcomes

Question 4

What does non-coop theory not allow?

Answer 4

Non-cooperative game theory does not allow for binding agreements and requires that predictions don’t require individual profitable deviations

Question 5

What is the disagreement vector?

Answer 5

The outside payoffs received if one or both players decide to reject a deal

Question 6

What is a bargaining set?

Answer 6

Set of possible payoffs vectors that players obtain if they accept or reject a deal

Question 7

What is the joint value?

Answer 7

The combined value of both players payoffs

Question 8

What is the efficient outcome?

Answer 8

The outcome in which joint payoff is maximised (UA+UB)

Question 9

What is the efficient outcome?

Answer 9

The outcome in which joint payoff is maximised (UA+UB)

Question 10

What is value added in bargaining?

Answer 10

Value added is the payoff received by accepting rather than rejecting a deal

Question 11

What are the two expectations of a nash solution of a bargaining set game?

Answer 11

• The solution is efficient

- Individuals are rational

Question 12

What does an efficient solution mean?

Answer 12

The solution maximises joint value

Question 13

What does it mean when individuals are rational?

Answer 13

Each player’s payoff is at least as large as their disagreement payoff

Question 14

What is the condition for an efficient nash bargaining solution?

Answer 14

Maximise joint utility subject to Ua + Ub = V*

Question 15

What is the benefit to a player of having a higher outside option?

Answer 15

They have a stronger bargaining solution because they have more to lose

Question 16

What is the uncomfortable assumption of cooperative theory?

Answer 16

Players can make binding agreements, which they may not stick to in real life

Question 17

What are 2 reasons that over time bargaining payoffs shrink?

Answer 17

• Payoffs may disappear

- Players may discount the future

Question 18

What are the steps of the ultimatum game?

Answer 18

• Player 1 offers price m to player 2
• Player 2 accepts/rejects and receives m or 0
• Player 1 receives 1-m or 0

Question 19

In the ultimatum game, what gives the buyer power?

Answer 19

The structure of the game gives the buyer power (they must go first)

Question 20

In the ultimatum game there is always an incentive for the buyer to deviate … … …

Answer 20

Closer to zero

Question 21

As players become relatively more patient, they become more willing to … and …

Answer 21

As players become relatively more patient, thy become more willing to wait and reject

Question 22

What does it mean for delta to be 0?

Answer 22

Players are perfectly impatient

Question 23

What does non cooperative approaches say predictions are sensitive too?

Answer 23

Specific context and the structure of the game