Hypothetical Bargaining and Equilibrium Refinement in Non-Cooperative Games

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Radzvilas, Mantas
preprint description
Virtual bargaining theory suggests that social agents aim to resolve non-cooperative games by identifying the strategy profile(s) which they would agree to play if they could openly bargain. The theory thus offers an explanation of how social agents resolve games with multiple Nash equilibria. One of the main questions pertaining to this theory is how the principles of the bargaining theory could be applied in the analysis of hypothetical bargaining in non-cooperative games. I propose a bargaining model based on the benefit-equilibrating bargaining solution (BES) concept for non-cooperative games, broadly in line with the principles underlying Conley and Wilkie's (2012) ordinal egalitarian solution for Pareto optimal point selection problems with finite choice sets. I provide formal characterizations of the ordinal and the cardinal versions of BES, discuss their application to n-player games, and compare model's theoretical predictions with the data available from several experiments involving `pie games'.