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Endogenous reference points in bargaining

Emin Karagözoğlu () and Kerim Keskin

Mathematical Methods of Operations Research, 2018, vol. 88, issue 2, 283-295

Abstract: Abstract We allow the reference point in (cooperative) bargaining problems with a reference point to be endogenously determined. Two loss averse agents simultaneously and strategically choose their reference points, taking into consideration that with a certain probability they will not be able to reach an agreement and will receive their disagreement point outcomes, whereas with the remaining probability an arbitrator will distribute the resource by using (an extended) Gupta–Livne bargaining solution (Gupta and Livne in Manag Sci 34:1303–1314, 1988). The model delivers intuitive equilibrium comparative statics on the breakdown probability, the loss aversion coefficients, and the disagreement point outcomes.

Keywords: Bargaining problem; Gupta–Livne solution; Loss aversion; Prospect theory; Reference points (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:spr:mathme:v:88:y:2018:i:2:d:10.1007_s00186-018-0636-2