Complexity and Efficiency in Repeated Games with Negotiation

This paper considers the "negotiation game" (Busch and Wen, 1995) which combines the features of two-person alternating offers bargaining and repeated games. Despite the forces of bargaining, the negotiation game in general admits a large number of equilibria some of which involve delay in agreement and inefficiency. In order to isolate equilibria in this game, we explicitly consider the complexity of implementing a strategy, introduced in the literature on repeated games played by automata. It turns out that when the players have a preference for less complex strategies (even at the margin) only efficient equilibria survive. Thus, complexity and bargaining in tandem may offer an explanation for co-operation in repeated gamesNegotiation Game, Repeated Game, Bargaining, Complexity, Bounded Rationality, Automaton

Complexity and Efficiency in Repeated Games with Negotiation

This paper considers the "negotiation game" (Busch and Wen, 1995) which combines the features of two-person alternating offers bargaining and repeated games. Despite the forces of bargaining, the negotiation game in general admits a large number of equilibria some of which involve delay in agreement and inefficiency. In order to isolate equilibria in this game, we explicitly consider the complexity of implementing a strategy, introduced in the literature on repeated games played by automata. It turns out that when the players have a preference for less complex strategies (even at the margin) only efficient equilibria survive. Thus, complexity and bargaining in tandem may offer an explanation for co-operation in repeated gamesNegotiation Game, Repeated Game, Bargaining, Complexity, Bounded Rationality, Automaton

Bargaining and Negotiations What should experimentalists explore more thoroughly?

A long time ago most economists would have limited themselves to stating that agreements should be individually rational and efficient and that selecting a specific agreement from that set depends on bargaining and negotiation power whatever that may be. Nowadays hardly any economist will argue that way. The change has been brought about by the strategic approach to bargaining and cooperation and the parallel experimental studies of bargaining and negotiation. When arguing what should be explored more thoroughly, we will point out directions where previous efforts may have been misdirected, where importing new methods may be helpful or even needed, and where new research questions need to be asked and answered.(un)bounded rationality, (non-)cooperative game theory, bargaining and negotiation (theory and experiments)

Bargaining with Incomplete Information

A central question in economics is understanding the difficulties that parties have in reaching mutually beneficial agreements. Informational differences provide an appealing explanation for bargaining inefficiencies. This chapter provides an overview of the theoretical and empirical literature on bargaining with incomplete information. The chapter begins with an analysis of bargaining within a mechanism design framework. A modern development is provided of the classic result that, given two parties with independent private valuations, ex post efficiency is attainable if and only if it is common knowledge that gains from trade exist. The classic problems of efficient trade with one-sided incomplete information but interdependent valuations, and of efficiently dissolving a partnership with two-sided incomplete information, are also reviewed using mechanism design. The chapter then proceeds to study bargaining where the parties sequentially exchange offers. Under one-sided incomplete information, it considers sequential bargaining between a seller with a known valuation and a buyer with a private valuation. When there is a "gap" between the seller's valuation and the support of buyer valuations, the seller-offer game has essentially a unique sequential equilibrium. This equilibrium exhibits the following properties: it is stationary, trade occurs in finite time, and the price is favorable to the informed party (the Coase Conjecture). The alternating-offer game exhibits similar properties, when a refinement of sequential equilibrium is applied. However, in the case of "no gap" between the seller's valuation and the support of buyer valuations, the bargaining does not conclude with probability one after any finite number of periods, and it does not follow that sequential equilibria need be stationary. If stationarity is nevertheless assumed, then the results parallel those for the "gap" case. However, if stationarity is not assumed, then instead a folk theorem obtains, so substantial delay is possible and the uninformed party may receive substantial surplus. The chapter also briefly sketches results for sequential bargaining with two-sided incomplete information. Finally, it reviews the empirical evidence on strategic bargaining with private information by focusing on one of the most prominent examples of bargaining: union contract negotiations.Bargaining; Delay; Incomplete Information

Human-Agent Decision-making: Combining Theory and Practice

Extensive work has been conducted both in game theory and logic to model strategic interaction. An important question is whether we can use these theories to design agents for interacting with people? On the one hand, they provide a formal design specification for agent strategies. On the other hand, people do not necessarily adhere to playing in accordance with these strategies, and their behavior is affected by a multitude of social and psychological factors. In this paper we will consider the question of whether strategies implied by theories of strategic behavior can be used by automated agents that interact proficiently with people. We will focus on automated agents that we built that need to interact with people in two negotiation settings: bargaining and deliberation. For bargaining we will study game-theory based equilibrium agents and for argumentation we will discuss logic-based argumentation theory. We will also consider security games and persuasion games and will discuss the benefits of using equilibrium based agents.Comment: In Proceedings TARK 2015, arXiv:1606.0729

Asymmetric Inequality Aversion and Noisy Behavior in Alternating-Offer Bargaining Games

In two-stage bargaining games with alternating offers, the amount of the pie that remains after a rejection is what the first player should offer to the second player, since the second player can capture this remainder in the final (ultimatum) stage. Fairness considerations will reduce the correlation between first-stage offers and the size of the remaining pie, but randomness in behavior will have the same "flattening" effect. This paper reports an experiment designed to separate these considerations, by introducing asymmetric fixed money payments to each player. These endowments do not affect the perfect positive correlation between initial Nash offers and the remaining pie, but are selected to induce a perfectly negative relationship between the remaining pie size and the first-stage offer that would equalize final earnings of the two players. This negative relationship is apparent in the data, which suggests the importance of fairness considerations. A theoretical model of asymmetric inequality aversion and stochastic choice is used to provide maximum likelihood estimates of utility and logit error parameters. The parameters representing "envy," "guilt," and logit errors are all significant, and the resulting model produces the observed negative relationship between initial offers and residual pie size.bargaining, ultimatum game, bounded rationality, logit equilibrium, fairness, equity aversion, endowment effects, envy, guilt

Alternating bid bargaining with a smallest money unit

Bargaining

Sequential bargaining with pure common values

We study the alternating-offers bargaining problem of assigning an indivisible and commonly valued object to one of two players in return for some payment among players. The players are asymmetrically informed about the object’s value and have veto power over any settlement. There is no depreciation during the bargaining process which involves signalling of private information. We characterise the perfect Bayesian equilibrium of this game which is essentially unique if offers are required to be strictly increasing. Equilibrium agreement is reached gradually and nondeterministically. The better informed player obtains a rent