Negotiation as a cooperative game

Official URL: http://dx.doi.org/10.1007/978-3-030-49629-6_10

Game theory provides us with a set of important methodologies for the study of group decisions as well as negotiation processes. Cooperative game theory is a subfield of game theory that focuses on interactions in which involved parties have the power to make binding agreements. Many group decision and negotiation processes (such as legal arbitrations) fall into this category, and as such, they have been central in the development of cooperative game theory. Particularly, an area of cooperative game theory, called bargaining theory, focuses on bilateral negotiations as well as negotiation processes where coalition formation is not a central concern. The object of study in bargaining theory is a (bargaining) rule, which provides a solution to each bargaining problem (or in other words, negotiation). Studies on bargaining theory employ the axiomatic method to evaluate bargaining rules. This chapter reviews and summarizes several such studies. After a discussion of the bargaining model, we present the important bargaining rules in the literature (including the Nash bargaining rule), as well as the central axioms that characterize them. Next, we discuss strategic issues related to cooperative bargaining, such as the Nash program, implementation of bargaining rules, and games of manipulating bargaining rules. We conclude with a discussion of the recent literature on ordinal bargaining rules.