Complexity and Efficiency in Repeated Games and Negotiation

Jongsu Lee () and Hamid Sabourian

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper considers the ‘negotiation game’ (Busch and Wen [4]) which combines the features of two-person alternating offers and repeated games. Despite the forces of bargaining, the negotiation game in general admits a large number of equilibria, some of which involve delay in agreement and inefficiency. In order to isolate equilibria in this game, we explicitly consider the complexity of implementing a strategy, introduced in the literature on repeated games played by automata. It turns out that when the players have a preference for less complex strategies (even at the margin) only efficient equilibria survive. Thus, complexity and bargaining in tandem may offer an explanation for co-operation in repeated games.

Keywords: negotiation game; repeated game; bargaining; complexity; bounded rationality; automaton (search for similar items in EconPapers)
JEL-codes: C72 C78 (search for similar items in EconPapers)
Pages: 53
Date: 2004-03
New Economics Papers: this item is included in nep-dev
Note: ET
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0419

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