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      Subgame Perfect Equilibrium in the Rubinstein Bargaining Game with Loss Aversion

      1 , 1
      Complexity
      Hindawi Limited

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          Abstract

          Rubinstein bargaining game is extended to incorporate loss aversion, where the initial reference points are not zero. Under the assumption that the highest rejected proposal of the opponent last periods is regarded as the associated reference point, we investigate the effect of loss aversion and initial reference points on subgame perfect equilibrium. Firstly, a subgame perfect equilibrium is constructed. And its uniqueness is shown. Furthermore, we analyze this equilibrium with respect to initial reference points, loss aversion coefficients, and discount factor. It is shown that one benefits from his opponent’s loss aversion coefficient and his own initial reference point and is hurt by loss aversion coefficient of himself and the opponent’s initial reference point. Moreover, it is found that, for a player who has a higher level of loss aversion than the other, although this player has a higher initial reference point than the opponent, this player can(not) obtain a high share of the pie if the level of loss aversion of this player is sufficiently low (high). Finally, a relation with asymmetric Nash bargaining is established, where player’s bargaining power is negatively related to his own loss aversion and the initial reference point of the other and positively related to loss aversion of the opponent and his own initial reference point.

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          Perfect Equilibrium in a Bargaining Model

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            Loss aversion equilibrium

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              The One-Shot-Deviation Principle for Sequential Rationality

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                Author and article information

                Journal
                Complexity
                Complexity
                Hindawi Limited
                1076-2787
                1099-0526
                March 26 2019
                March 26 2019
                : 2019
                : 1-23
                Affiliations
                [1 ]School of Business, Central South University, Changsha 410083, China
                Article
                10.1155/2019/5108652
                dfa3e9f8-39e7-4e30-967a-2b86e5692547
                © 2019

                http://creativecommons.org/licenses/by/4.0/

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