Bargaining

• Cooperative game theory: specify reasonable conditions solutions should satisfy without writing down full details of bargaining process
• Non-cooperative game theory: write a specific bargaining game and analyse using tools from wk1-3
• Nash's axioms: Weak Pareto efficiency: for a unique bargaining outcome, there does not exist a pair that would make both players better off
• Nash's Axioms: Symmetry - same disagreement point, same utility level
• Nash's axioms: invariance to equivalent payoff representations - solution is the same under linear transformations
• Nash's axioms: independence of irrelevant alternatives - for a smaller feasible set containing the original solution and disagreement points, the solution remains unchanged
• Nash's (1950) theorem: there is a unique function that satisfies WP, SYM, INV and IIA
• disagreement point: payoff level in case no agreement is reached