Divide the Dollar and Conquer More: Sequential Bargaining and Risk Aversion

ETH Zurich: Negotiation and Conflict Management Research Paper Series, 16-01

28 Pages Posted: 12 Oct 2016

See all articles by Philip Grech

Philip Grech

ETH Zürich

Oriol Tejada

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: October 7, 2016

Abstract

We analyze the problem of dividing a fixed amount of a single commodity between two players on the basis of the Nash Bargaining Solution (NBS). For one-shot negotiations, a cornerstone result of Roth (1989) establishes that the more risk averse player will obtain less than half the total amount. In the present paper, we assume that the bargaining procedure occurs along several rounds. In each round, only a share of the total amount is negotiated over according to the NBS, with the disagreement point being determined by the outcome of the previous rounds. In accordance with Roth's result, the amount received by the more risk averse player is still bounded by half the total amount. In addition, this player does not lose from bargaining over more rounds if his opponent exhibits non-increasing absolute risk aversion. Finally, both players' risk profiles become essentially irrelevant if the number of rounds is sufficiently large.

Keywords: Bargaining; Nash Bargaining Solution; risk aversion; sequential procedure

JEL Classification: C70; C78

Suggested Citation

Grech, Philip and Tejada, Oriol, Divide the Dollar and Conquer More: Sequential Bargaining and Risk Aversion (October 7, 2016). ETH Zurich: Negotiation and Conflict Management Research Paper Series, 16-01. Available at SSRN: https://ssrn.com/abstract=2850511 or http://dx.doi.org/10.2139/ssrn.2850511

Philip Grech (Contact Author)

ETH Zürich ( email )

Weinbergstrasse 56/58
WEV K513
Zurich, 8092
Switzerland

Oriol Tejada

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
41446329693 (Phone)

HOME PAGE: http://www.cer.ethz.ch/mip/people/toriol

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