The way John Nash considered the problem of two-player bargaining was to suppose there is a set of different outcomes represented by coordinate points (*u*_{1},*u*_{2}) that are available to the players. Even though the players are bargaining over money, the outcomes can be measured more generally as utilities (hence the *u* notation). The players need to agree on one of the joint outcomes or else they both end up at an inferior *disagreement point.*

Instead of modeling a back-and-forth “haggling” process where two players are trying to narrow a monetary gap between them, let’s represent the bargaining problem as one of sharing a sum *M* of money. This sum could be the amount of money “on the table” in a negotiation, the amount left over ...

Start Free Trial

No credit card required