Compromise



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Posted by: stak
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Posted on: 2009-08-11 22:26:27

Schneier's post on self-enforcing protocols reminded me of a similar scheme I thought of a while ago for negotiating the price of something when there's a single buyer and seller. In order to get the best price for both parties, the buyer should write down the maximum price he is willing to pay. The seller should write down the minimum price he is willing to accept. If the buyer's number is greater than or equal to the seller's number, then the price is the average of the two numbers. If the buyer's number is smaller, then there's no deal. The key is that this process happens only once, so neither side has a chance to cheat and adjust their number later. If they want the deal to actually happen then they should be honest about their max/min bids, and that automatically results in the fairest price for both parties.

Posted by Zain at 2009-08-13 21:21:50
That's not a Nash Equilibrium though. Both parties have incentive to deviate from the max/min they are willing to pay/receive in order to gain a higher expected surplus.
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