Mechanism For Solving Bargaining Problems Between Risk Averse Parties

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Executive Summary

The authors propose a mechanism for resolving bargaining problems. The mechanism allows two players to make a sequence of simultaneous propositions. At any step, as long as the players have not reached an agreement, they can choose to implement a lottery between the different propositions. In this aspect, the mechanism is similar to the so called final offers arbitration. However, contrary to the existing scheme, this mechanism is not compulsory. The history of the negotiation process is recorded and players can refuse an offer and go back in the process to a previous step.

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