Feasible Set

Definition

The feasible set refers to the collection of all possible outcomes or agreements that are achievable for the parties involved in a negotiation, given their individual preferences and constraints. This set outlines the limits of what can be accomplished through bargaining, highlighting the various combinations of resources, utilities, or payoffs that are acceptable to both sides. Understanding the feasible set is crucial for determining which outcomes are realistic and can lead to mutually beneficial agreements.

5 Must Know Facts For Your Next Test

1. The feasible set is determined by each player's constraints and preferences, mapping out the range of possible negotiations.
2. The Nash Bargaining Solution identifies a specific outcome within the feasible set that maximizes the product of the players' utilities over their disagreement point.
3. Understanding the feasible set helps negotiators identify which agreements are realistic based on available resources and individual goals.
4. Graphically, the feasible set can be represented in a two-dimensional space, where each axis corresponds to the payoffs of the negotiating parties.
5. Any solution outside the feasible set is unattainable, emphasizing the importance of recognizing limitations in negotiations.

Review Questions

• How does the feasible set relate to players' constraints in a bargaining scenario?
  • The feasible set encompasses all potential outcomes that can be achieved within the constraints imposed by each player's preferences and available resources. These constraints shape what is acceptable for each party, defining the boundaries within which they can negotiate. By analyzing these constraints, negotiators can identify what agreements are viable and focus their efforts on solutions that lie within this feasible region.
• Discuss how the Nash Bargaining Solution utilizes the concept of the feasible set to determine optimal agreements.
  • The Nash Bargaining Solution is derived from the feasible set by identifying an outcome that maximizes the product of each player's utility gains over their disagreement points. This solution focuses on finding a point within the feasible set where both parties feel they are receiving a fair deal while ensuring that their respective interests are respected. By doing so, it highlights how negotiation can lead to mutually beneficial agreements grounded in what is achievable.
• Evaluate the implications of not considering the feasible set during negotiations and its potential impact on achieving successful outcomes.
  • Neglecting to consider the feasible set during negotiations can lead to unrealistic expectations and proposals that exceed available resources or violate constraints. This oversight often results in deadlock or failed negotiations, as parties may become entrenched in positions that are unattainable. Understanding and utilizing the feasible set not only aids in crafting realistic offers but also facilitates collaboration between parties by focusing discussions on achievable solutions, ultimately enhancing the likelihood of successful outcomes.

Related terms

Nash Equilibrium: A situation in which no player can benefit by changing their strategy while the other players keep theirs unchanged, indicating a stable outcome.

Utility Function: A mathematical representation of an individual's preferences over a set of goods or outcomes, used to determine satisfaction levels.

Pareto Efficiency: An economic state where resources are allocated in the most efficient manner, meaning that any change would harm at least one participant's situation.