Independent utility scaling and the nash bargaining model

Abstract

A newly developed method for independent utility scaling was used to replicate Nydegger and Owen's earlier work that experimentally evaluated the Nash axioms for two-person bargaining. This was done in an attempt to devise better correspondence between abstract models and experimental applications in game theory. The results were: (1) The independently developed utility scales did apparently minimize the problem of interpersonal comparisons of utility. (2) When irrelevant alternatives are introduced into the bargaining, the Smorodinsky-Kalai monotonicity axiom is as descriptive of subject behavior as the Nash model. (3) When comparison processes are controlled, the Nash axiom on invariance under linear transformations of utility does seem to hold. This lends credence to Nydegger and Owen's contention that the failure of this axiom to hold up in early experimental studies was due primarily to players' attempts to effect interpersonal comparisons of utility. In summary, understanding of the complexity of the interpersonal bargaining setting seems to depend in part on developing more appropriate methods of making cross-systems comparisons, that is, in relating the bargaining unit as a whole to the player subsystems.