Social Foundation of Nash Bargaining Solution

University Of Illinois At Urbana-Champaign, Urbana IL

Investigators

Abstract

This award funds research in economic theory. The goal is to develop a new foundation for the Nash bargaining solution, a basic scientific insight about the likely outcome of bargaining processes. This concept was originally developed using an axiomatic approach. Later research in game theory demonstrated that this same outcome was predicted by non-cooperative strategic behavior if the two parties to a bargain were negotiating through alternative offers. However, bargaining happens in many different contexts, and whether or not the Nash solution is the predicted outcome of strategic bargaining in other contexts is an unanswered question. The PI and his research team are developing a new method to build a decentralized strategic foundation for the Nash bargaining solution that will apply to many different possible bargaining methods or protocols. The key idea is that the bargaining process emerges endogenously, rather than being assumed ex ante. The research addresses fundamental questions about the kind of social dynamics that will sustain the Nash bargaining solution as an equilibrium steady state. This will allow them to assess how plausible the solution concept is for alternative models of the economy. Broader impacts include the possible use of this new model and methods in a wide range of social sciences that use game theory to develop hypotheses about bargaining outcomes.