Question

Discuss the various payoff systems as it relates to bargaining and negotiations.

Answer 1

The two-person bargaining problem studies how two agents share a surplus that they can jointly generate. It is in essence a payoff selection problem. In many cases, the surplus created by the two players can be shared in many ways, forcing the players to negotiate which division of payoffs to choose. There are two typical approaches to the bargaining problem. A normative approach that studies how the surplus should be shared. The normative approach formulates appealing axioms that the solution to a bargaining problem should satisfy. The positive approach answers the question how the surplus will be shared. Under the positive approach, the bargaining procedure is modeled in detail as a non-cooperative game.