Your outside option changes the agreement.
The Nash bargaining solution selects a feasible agreement by maximizing the product of gains above disagreement payoffs, under its axioms.
Inside this model
A receives x and B receives 100−x. Feasible gains require x≥a and 100−x≥b. With equal bargaining weights, x*=a+(100−a−b)/2 when a+b≤100. If a+b>100, there is no individually rational agreement and each takes its outside option.
Out in the world
A practical use
A credible alternative supplier or job offer can affect negotiations by changing the payoff available without agreement.
A useful lens. Not a universal law.
- This is a cooperative solution with transferable, linear utility and equal weights. It does not simulate a sequence of offers or say that all negotiations follow this solution.
Associated thinkers
Further reading
Explore the original research or the teaching reference behind this experiment.
PNAS — The Nash equilibrium: a perspective ↗