NASH BARGAINING GAME Meaning and
Definition
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A Nash bargaining game refers to a mathematical model that captures the bargaining process between two or more individuals or entities. Named after mathematician John Nash, who proposed the concept, a Nash bargaining game involves a situation where the parties coordinate and make strategic decisions to reach an outcome that is satisfactory for all. The game assumes that the players engage in rational decision-making and strive to maximize their respective benefits.
In a Nash bargaining game, each participant has their own preferences, goals, and constraints. The players negotiate and propose various outcomes, aiming to find a solution that optimizes their individual gains. The bargaining process involves iterative rounds of offers and counteroffers, with the players having full knowledge of each other's preferences.
A key feature of a Nash bargaining game is that it seeks a solution that is considered the most equitable compromise between the players' individual demands. This is achieved through a concept called the Nash bargaining solution, which identifies the unique outcome that lies on the players' so-called "bargaining frontier." The bargaining frontier represents the set of feasible outcomes that are acceptable to both parties.
The Nash bargaining solution is characterized by its efficiency and fairness. It ensures that any outcome deviating from the solution would be strictly worse for at least one participant. Therefore, the Nash bargaining game provides a framework for analyzing and understanding the strategic interactions that occur during negotiations, allowing for the prediction of potential outcomes and optimal compromise solutions.
