A projected gradient dynamical system modeling the dynamics of bargaining

Diogo Pinheiro, Alberto Pinto, S. Xanthopoulos and A. Yannacopoulos
Additional contact information
Alberto Pinto: Department of Mathematics, Faculty of Science, University of Porto
S. Xanthopoulos: University of the Aegean, Samos, Greece
A. Yannacopoulos: Athens University of Economics and Business, Athens, Greece

No 1101, CEMAPRE Working Papers from Centre for Applied Mathematics and Economics (CEMAPRE), School of Economics and Management (ISEG), Technical University of Lisbon

Abstract: We propose a projected gradient dynamical system as a model for a bargaining scheme for an asset for which the two interested agents have personal valuations which do not initially coincide. The personal valuations are formed using subjective beliefs concerning the future states of the world and the reservation prices are calculated using expected utility theory. The agents are not rigid concerning their subjective probabilities and are willing to update them under the pressure to reach finally an agreement concerning the asset. The proposed projected dynamical system, on the space of probability measures, provides a model for the evolution of the agents beliefs during the bargaining period and is constructed so that agreement is reached under the minimum possible deviation of both agents from their initial beliefs. The convergence results are shown using techniques from convex dynamics and Lyapunov function theory.

Keywords: Discrete time projected dynamical systems; optimization; bargaining (search for similar items in EconPapers)
Pages: 31 pages
Date: 2011-10
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Citations: View citations in EconPapers (1)

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