On Risk Aversion and Bargaining Outcomes

Oscar Volij & Eyal Winter

We revisit the well-known result that asserts that an increase in the degree of one's risk aversion improves the position of one's opponents. To this end, we apply Yaari's dual theory of choice under risk both to Nash's bargaining problem and to Rubinstein's game of alternating offers. Under this theory, unlike under expected utility, risk aversion influences the bargaining outcome only when this outcome is random, namely, when the players are risk-lovers. In this case, an increase in one's degree of risk aversion increases one's share of the pie.

March, 2000
Published in: 
Games and Economic Behavior 41 (2002), 120-140.