Feasible Set

Definition

The feasible set refers to the collection of all possible outcomes or agreements that can be achieved by negotiating parties, given their individual constraints and preferences. In the context of bargaining, particularly in the Nash bargaining solution, the feasible set is crucial because it defines the boundaries within which parties can negotiate and reach mutually beneficial agreements. It is shaped by factors such as resource availability, individual utility functions, and external constraints.

5 Must Know Facts For Your Next Test

1. The feasible set is often visualized in a graphical representation, where each point within the set represents a possible agreement that meets both parties' constraints.
2. In Nash bargaining, the solution is typically found at a point in the feasible set that maximizes the product of the parties' utilities.
3. The boundaries of the feasible set are determined by each party's minimum acceptable outcome and resource limitations.
4. Any agreement reached outside the feasible set is considered unattainable and therefore not a viable option for negotiation.
5. The size and shape of the feasible set can greatly affect negotiation dynamics, including the likelihood of reaching an agreement and its final terms.

Review Questions

• How does the concept of the feasible set influence the negotiation process in game theory?
  • The feasible set significantly shapes negotiation processes as it defines the limits of what outcomes are possible given each party's constraints and preferences. By outlining what agreements can realistically be made, it helps negotiators understand their options and strategize effectively. If both parties are aware of their feasible sets, they can focus on exploring points within this boundary to maximize their utilities during negotiations.
• Discuss how changes in individual utility functions can affect the feasible set during bargaining situations.
  • Changes in individual utility functions can directly impact the feasible set by altering what each party deems acceptable or preferable in an agreement. For instance, if one party values a particular outcome significantly more due to a change in their circumstances or preferences, this may expand or contract the feasible set. Negotiators must adapt to these shifts as they could lead to new potential agreements or redefine existing boundaries of what is achievable.
• Evaluate how understanding the feasible set can lead to better negotiation outcomes in real-world scenarios.
  • Understanding the feasible set allows negotiators to identify viable agreements and enhance their strategic approach to discussions. By mapping out what is attainable, parties can prioritize their interests effectively and avoid wasting time on unattainable proposals. This insight can lead to more constructive negotiations where solutions are reached faster, minimizing conflict and maximizing satisfaction for all involved, which is essential in business deals, labor negotiations, and conflict resolution.

Related terms

Nash Equilibrium: A situation in a game where no player can benefit by changing their strategy while the other players keep theirs unchanged.

Bargaining Power:

The relative ability of each party in a negotiation to influence the terms of an agreement in their favor.

Utility Function:

A mathematical representation of an individual's preferences, showing how different outcomes yield varying levels of satisfaction.