Bargaining via Weber's law
V. G. Bardakhchyan, A. E. Allahverdyan

TL;DR
This paper introduces a novel bargaining solution based on Weber's law, which models utility perception and leads to a unique, affine-covariant solution that aligns with the Nash solution and explains empirical features of the ultimatum game.
Contribution
It applies Weber's law to bargaining, deriving a new solution method that does not rely on inter-personal utility comparisons and explains empirical observations.
Findings
The solution converges to the Nash solution for susceptible players.
It applies to the ultimatum game, reproducing its empirical features.
The solution is covariant under affine transformations of utilities.
Abstract
We solve the two-player bargaining problem employing Weber's law in psychophysics, which is applied to the perception of utility changes. Using this law, the players define the jointly acceptable range of utilities on the Pareto line, which narrows down the range of possible solutions. Choosing a unique solution can be achieved by applying the Weber approach iteratively. The solution is covariant to independent affine transformations of utilities. We provide a behavioral interpretation of this solution, where the players negotiate via Weber's law. For susceptible players, iterations are unnecessary, so they converge in one stage toward the (axiomatic) asymmetric Nash solution of the bargaining problem, where the weights of each player are expressed via their Weber constants. Thus the Nash solution is reached without external arbiters and without requiring the independence of irrelevant…
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Taxonomy
TopicsLabor Movements and Unions
