Lost in Translation? Basis Utility and Proportionality in Games

Barry Feldman ()

Game Theory and Information from EconWPA

Abstract: Cooperative and noncooperative games have no representation of players's basis utilities. Basis utility is the natural reference point on a player's utility scale that enables the determination the marginal utility of any payoff or allocation. A player's basis utility can be determined by an observer and other players under standard rationality assumptions. Basis utility allows interpersonal comparison of proportional utility gains relative to the disagreement outcome. Proportional pure bargaining is the unique solution satisfying efficiency, symmetry, affine transformation invariance and monotonicity in pure bargaining games with basis utility. Characterization of the Nash (1950) bargaining solution requires the assumption of the irrelevance of basis utility in games with basis utility. All existing cooperative solution functions become translation invariant once proper account is taken of basis utility. The noncooperative rationality of these results is demonstrated with a proportional bargaining based on Gul (1988). Further noncooperative application is demonstrated by showing that quantal response equilibria with multiplicative error structures (Goeree, Holt and Palfrey (2004)) become translation invariant with specification of basis utility.

Keywords: Basis utility; equal split; Kalai-Smorodinsky solution; Nash bargaining; quantal response equilibria; proportional bargaining; translation invariance. (search for similar items in EconPapers)
JEL-codes: C70 C71 C72 C78 (search for similar items in EconPapers)
Date: 2005-07-02, Revised 2006-02-28
Note: Type of Document - pdf; pages: 25
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpga:0507001

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