Rubinstein Bargaining
Bargaining with patience
The Rubinstein bargaining model is a game-theoretic approach to bargaining where two parties alternate making offers. The model takes into account the cost of waiting and the patience of the parties involved. The solution to the game is a division of the pie that depends on the degree of impatience, with the more patient side getting a larger share.
- The more patient side gets a larger share of the pie.
- The cost of waiting affects the bargaining outcome.
- The degree of impatience determines the division of the pie.
- Determine the degree of impatienceCalculate the cost of waiting and the degree of impatience for each party. This can be represented by the variable δ, where δ = 1 means no cost of waiting and δ = 0 means the pie disappears if not accepted immediately.Pro tipConsider the time period between offers and the potential loss of value if an agreement is not reached.WarningBe aware that the degree of impatience can affect the bargaining outcome and the division of the pie.
- Calculate the minimum acceptable offerDetermine the minimum amount that each party is willing to accept. This can be represented by the variable L, where L is the minimum amount that a party will accept.Pro tipConsider the potential loss of value if an agreement is not reached and the cost of waiting.WarningBe aware that the minimum acceptable offer can affect the bargaining outcome and the division of the pie.
- Calculate the maximum acceptable offerDetermine the maximum amount that each party is willing to offer. This can be represented by the variable M, where M is the maximum amount that a party will offer.Pro tipConsider the potential gain from reaching an agreement and the cost of waiting.WarningBe aware that the maximum acceptable offer can affect the bargaining outcome and the division of the pie.
- Determine the bargaining outcomeUse the minimum and maximum acceptable offers to determine the bargaining outcome. The solution to the game is a division of the pie that depends on the degree of impatience, with the more patient side getting a larger share.Pro tipConsider the degree of impatience and the cost of waiting when determining the bargaining outcome.WarningBe aware that the bargaining outcome can be affected by the degree of impatience and the cost of waiting.
In labor negotiations, the union and management may engage in a bargaining game where they alternate making offers. The Rubinstein bargaining model can be used to analyze this situation and determine the optimal bargaining outcome.
In business negotiations, two companies may engage in a bargaining game where they alternate making offers. The Rubinstein bargaining model can be used to analyze this situation and determine the optimal bargaining outcome.
The Rubinstein bargaining model was developed by Ariel Rubinstein as a way to solve the bargaining problem in a game-theoretic framework. The model has been widely used in economics and business to analyze negotiations and bargaining situations.