The effect of decision weights in bargaining problems.
type: Item
instance of: scholarly article
title: The effect of decision weights in bargaining problems.
zbMATH Open document ID: 1045.91016
DOI: 10.1016/S0022-0531(03)00009-7
author: Veronika Köbberling
author: Hans Peters
published in: Journal of Economic Theory
publication date: 2003-07-30T00:00:00Z
review text: The present paper investigates bargaining problems, under the welfare-like approach, where the bargainer's preferences are represented as a rank-dependent utility (functional). M. E. Yaari (1986) provided an intuitive definition of risk aversion, and showed that, under expected utility, one decision-maker's more risk averse than another if and only if the utility function of the former is a strictly increasing concave transformation of that of the latter. In the rank-dependent utility model, in contrast to the expected utility one, not only the utility function but also a probability weighting function determines the risk attitude of a decision-maker. In the present paper, two risk aversion factors are distinguished: the utility risk aversion, associated with the utility function as in the expected utility model, and the probability weighting function as in the rank-dependent utility model. Focusing on the probability risk aversion, the authors try to answer the classical question in bargaining problems: is it advantageous or disadvantageous to bargain with a more risk-averse person? After necessary preliminary definitions (Section 2), Section 3 investigates the impact of both utility and probability risk aversion for the bargaining solution developed by Y. Kalai and M. Smorodinsky (1975). The main result of this section is that, for a large class of bargaining problems (whose solutions exhibit a weak monotonicity property), it is advantageous to have a less probability risk averse, and a more utility risk averse opponent. Apparently surprising, this result is nevertheless not counterintuitive since the increased probability risk aversion of the opponent could be bad for a player, because such an opponent might insist on larger probabilities for good alternatives and thereby reduce the other player's utility. The obtained approach may also have strategic implications if it is assumed that bargainers can be dishonest about their true preferences, and pretend to evalu…
Mathematics Subject Classification ID: 91B26
Mathematics Subject Classification ID: 91B30
Mathematics Subject Classification ID: 91B16
Mathematics Subject Classification ID: 91A30
Mathematics Subject Classification ID: 91A35
Mathematics Subject Classification ID: 91A12
zbMATH DE Number: 1957020
zbMATH Keywords: bargaining problems
zbMATH Keywords: expected utility model
zbMATH Keywords: rank-dependent utility
zbMATH Keywords: risk aversion
zbMATH Keywords: utility risk aversion
zbMATH Keywords: probability risk aversion
zbMATH Keywords: Kalai-Smorodinsky bargaining solution
zbMATH Keywords: Nash bargaining solution
MaRDI profile type: Publication
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full work available at URL: s0022-0531(03)00009-7
OpenAlex ID: W2102696797
description: scientific article; zbMATH DE number 1957020