Game Theoretic Rationality

Each outcome in a negotiation situation may be identified in terms of its utility for each party. In Figure A1-7, for example, party 1's utility function is represented as u1; party 2's utility function is represented as u2. Remember that utility payoffs represent the satisfaction parties derive from particular commodities or outcomes, not the actual monetary outcomes or payoffs themselves. A bargaining situation like that in Figure A1-7 has a feasible set of utility outcomes, or F, defined as the set of all its possible utility outcomes for party 1 and party 2 and by its conflict point, c, where c = (c1, c2). c represents the point at which both parties would prefer not to reach agreement—the reservation points of ...

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