This lecture introduces the assumptions for the baseline model of bargaining we are going to begin with.
- The simplest form of bargaining is a single take-it-or-leave-it offer. Hence, we call the interaction the ultimatum game.
- We will begin by assuming that the proposer of the offer can only offer discrete amounts. (That is, $20 is fine but $20.005 is not.) Later, we will explore a richer model that permits a full continuum of offers.
- The players only wish to maximize their monetary gains. This seems like a strong assumption, but it is very reasonable in business settings.