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Public Choice

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

Individual rationality and bargaining

  • Abraham Diskin
  • Dan S. FelsenthalEmail author
Article

Abstract

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.

Keywords

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

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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

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