Public Choice

, Volume 133, Issue 1–2, pp 25–29 | Cite as

Individual rationality and bargaining

  • Abraham Diskin
  • Dan S. FelsenthalEmail author


We argue that Nash’s solution to the bargaining problem should be modified such that it will be based on a New Reference Point (NRP). Such a point is needed so that a player is not considered ‘individually rational’ if he accepts an agreement that provides him with a utility lower than the minimal utility he can derive from any Pareto optimal agreement, or if he accepts an agreement that provides him a utility lower than the one he can obtain by unilateral action. The employment of such NRP requires modifying two axioms and hence leads to a new proposed solution.


Bargaining problem Individual rationality Minimal utility Minimax point Nash’s bargaining solution Pareto optimality Reference point 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aumann, R. J., & Maschler, M. (1985). Game theoretic analysis of a bankruptcy problem from the Talmud. Journal of Economic Theory, 36, 195–213. CrossRefGoogle Scholar
  2. Butler, C. K. (2004). Modeling compromise at the international table. Conflict Management and Peace Science, 21, 159–177. CrossRefGoogle Scholar
  3. Conley, J. P., McLean, R. P., & Wilkie, S. (1997). Reference functions and possibility theorems for cardinal social choice problems. Social Choice and Welfare, 14, 65–78. CrossRefGoogle Scholar
  4. Dagan, N., Volij, O., & Winter, E. (2002). A characterization of the Nash bargaining solution. Social Choice and Welfare, 19, 811–823. CrossRefGoogle Scholar
  5. Felsenthal, D. S., & Diskin, A. (1982). The bargaining problem revisited: minimum utility point, restricted monotonicity axiom, and the mean as an estimate of expected utility. Journal of Conflict Resolution, 26, 664–691. CrossRefGoogle Scholar
  6. Herrero, C. (1998). Endogenous reference points and the adjusted proportional solution for bargaining problems with claims. Social Choice and Welfare, 15, 113–119. CrossRefGoogle Scholar
  7. Kalai, E., & Smorodinsky, M. (1975). Other solutions to Nash’s bargaining problem. Econometrica, 45, 513–518. CrossRefGoogle Scholar
  8. Luce, D. R., & Raiffa, H. (1957). Games and decisions: Introduction and critical survey. New York: Wiley. Google Scholar
  9. Nash, J. F. Jr. (1950). The bargaining problem. Econometrica, 18, 155–162. CrossRefGoogle Scholar
  10. Roth, A. E. (1977). Individual rationality and Nash’s solution to the bargaining problem. Mathematics of Operations Research, 2(1), 64–65. CrossRefGoogle Scholar
  11. Schellenberg, J. A. (1988). A comparative test of three models for solving the bargaining problem. Behavioral Science, 33, 81–96. CrossRefGoogle Scholar
  12. Young, H. P. (1994). Equity in theory and practice. Princeton: Princeton University Press. Google Scholar

Copyright information

© Springer Science+Business Media, BV 2007

Authors and Affiliations

  1. 1.Department of Political ScienceThe Hebrew University of JerusalemJerusalemIsrael
  2. 2.Department of Political ScienceUniversity of HaifaHaifaIsrael

Personalised recommendations