Stability, fairness and random walks in the bargaining problem

Abstract

We study the classical bargaining problem and its two canonical solutions, (Nash and Kalai–Smorodinsky), from a novel point of view: we ask for stability of the solution if both players are able distort the underlying bargaining process by reference to a third party (e.g. a court). By exploring the simplest case, where decisions of the third party are made randomly we obtain a stable solution, where players do not have any incentive to refer to such a third party. While neither the Nash nor the Kalai–Smorodinsky solution are able to ensure stability in case reference to a third party is possible, we found that the Kalai–Smorodinsky solution seems to always dominate the stable allocation which constitutes novel support in favor of the latter.