A key concept familiar to game theorists is bargaining: the study of how surplus should be shared among rational agents. In simple terms, cooperative bargaining seeks for a fair way to split the gains from cooperation. When both sides are willing to work together, these solutions can lead to outcomes that make everyone better off.
[Elly studies Politics, Philosophy and Economics (PPE) and Psychology, and is a writer at ESSA. She is interested in exploring how ideas from economics, behavioural science and political theory can inform one another in meaningful ways. With her interdisciplinary academic background, she aims to explore the intersection of everyday life and abstract ideas.]
A key concept familiar to game theorists is bargaining: the study of how surplus should be shared among rational agents (Thomson, 1994). In simple terms, cooperative bargaining seeks for a fair way to split the gains from cooperation. When both sides are willing to work together, these solutions can lead to outcomes that make everyone better off. While terms like “Nash equilibrium”, “Pareto efficiency” and “mixed motive” may sound abstract, we likely encounter bargaining all the time. This essay aims to explore the everyday examples of bargaining, illustrating how fairness and strategy shape outcomes in all kinds of negotiations both within and beyond white-collar settings.
Haggle Culture
Bargaining was first introduced to me in the secondhand stalls near my neighbourhood in Hong Kong – the East Asian equivalent of garage sales. I remember watching my parents and neighbours engage in conversations that were both feisty and playful, all trying to secure the “best deal”. The moment that stood out was my mother bargaining for a bear plushie for me that was already priced at just $10 HKD (presently around $2 AUD). This made me wonder, “Why go to such lengths for something considerably inexpensive?”
This is because haggling is a respected tradition and a way of life in much of Asia. The main motivations behind haggling combine economic incentives and cultural expectations – while the seller may give up a small portion of their profit, it is often offset by the social benefit of building relationships with the 街坊, or the neighbourhood community. Additionally, it is interesting to note that different cultural approaches shape bargaining behaviour: multi-active types (common in Southern Europe, the Middle East, and parts of Asia) tend to be flexible and enjoy extended negotiations, while linear-active or reactive types (common in the USA, Japan, China) are more structured and may accept offers earlier (Ott, 2016). My mother’s negotiation for the bear plushie would be an example of multi-active bargaining, as a focus on social engagement took precedence over the price. Haggling is as much about social interaction and relationship-building as it is about price (Sood, 2010).
Bargaining Games and Social Situations
While bargaining has cultural roots, it is also needed for strategic negotiations. What Rubinstein’s bargaining model teaches us is how time and patience shape negotiations. In this model, two players take turns making offers to split a metaphorical pie; the longer they take to reach an agreement, the more the pie effectively shrinks due to a discount factor which represents impatience or the cost of waiting (Rubinstein, 1982). In infinitely repeated games, if one player is more impatient, hence has a lower discount factor, they are more likely to accept early offers while the other can use their patience strategically. Beyond haggling, the model shows that running out of time or being impatient can cost you, while careful timing and strategic offers can maximise your share of the pie.
How does this look in everyday scenarios? A notable example of this is wage negotiations (Binmore et al., 1986). When a candidate is desperate for employment, they accept lower salary offers because their discount factor is high: they urgently need income. An employer can recognise this and make lower initial offers, all the while knowing the candidate will likely accept to end the uncertainty. Conversely, a candidate with multiple job offers can credibly signal they are willing to walk away, effectively lowering their discount factor. Thus, this patience forces the employer to improve their offer. Rubinstein’s insights suggest that individuals with higher socio-economic status often have higher disagreement points, since they have less to lose and can afford to be less patient, even as the pie continues to shrink. Individuals who are socially disadvantaged based on factors like race, ethnicity or class have less bargaining power (Agarwal, 2001).
A similar dynamic appears in collaborative settings, such as deciding a topic for a university group project. A team member who quickly accepts the first proposed topic may end up with less desirable work. Meanwhile, a more patient member who negotiates strategically and considers other alternatives can secure a final decision that better suits their strengths and preferences. Like wage negotiations, this scenario illustrates the importance of patience and signaling a high disagreement point: in both cases, the party who can credibly show they do not require an immediate agreement holds the upper hand, demonstrating how the principles of the Rubinstein model extend beyond formal economic contexts.
Negotiation and Play: How Children Practise Bargaining Games
An unexpected real-world demonstration of these bargaining principles emerged during the pandemic lockdown in the form of “Pop It Trading”, a phenomenon that captured children’s imagination worldwide. In this informal yet sophisticated game, children use a simple interface – typically a mat with three buttons: accept, add, and reject – to trade fidget toys with peers. Player 1 initiates by displaying a toy (such as a Pop It) as their opening offer. Player 2 then decides whether to accept the offer, reject it entirely or request that Player 1 add more toys to the pool. The game continues with alternating proposals and counterproposals until both players reach agreement or one party walks away. Though children developed these rules organically without formal game theory training, Pop It Trading embodies the exact mechanics of a sequential bargaining model.
What makes Pop It Trading particularly revealing is how it demonstrates bargaining principles operating outside academic frameworks. Children intuitively grasp that patience yields leverage: a player willing to reject multiple offers and wait for a better deal eventually receives more favourable terms. Conversely, players who accept early offers settle for less. While children cannot perform formal backward induction calculations, their play reveals an innate understanding of how timing and persistence shape negotiation outcomes.
The phenomenon grew so viral that digital versions were adopted on Roblox, hence enabling what might be called international trade among children across different countries and continents. In these digital spaces, children experience firsthand how patience, signaling through repeated interactions and strategic offer-making influence outcomes – all without recognising they are enacting economic theory. The gamified format obscures the serious bargaining dynamics at work, thereby making what is essentially a bargaining model feel like pure entertainment. Beneath the surface, however, these games serve as a powerful demonstration of how bargaining intuitions are fundamental to human interaction.
Final Thoughts
Bargaining is more common than you might realise: from street stalls and group projects to playful online games, the principles of negotiation permeate everyday life. Bargaining can be strategic, it can be deeply social, and yes, it can sometimes be fun. As for my mother’s bear plushie, she managed to secure it for free – a small but perfect example of a win-win outcome where both the seller and buyer gained value. In that simple transaction lay all the elements of bargaining theory: patience, cultural understanding and the recognition that negotiation thrives when both parties seek mutual gain rather than zero-sum victory.
References
Agarwal, B. (2001). Land Rights and Gender. In N. J. Smelser & P. B. Baltes (Eds.), International Encyclopedia of the Social & Behavioral Sciences (pp. 8251–8256). Pergamon. https://doi.org/10.1016/B0-08-043076-7/03971-1
Binmore, K., Rubinstein, A., & Wolinsky, A. (1986). The Nash Bargaining Solution in Economic Modelling. The RAND Journal of Economics, 17(2), 176–188. https://doi.org/10.2307/2555382
International Encyclopedia of the Social & Behavioral Sciences. (n.d.). ScienceDirect. http://www.sciencedirect.com:5070/referencework/9780080430768/international-encyclopedia-of-the-social-and-behavioral-sciences
Ott, U. F. (2016). The art and economics of international negotiations: Haggling meets hurrying and hanging on in buyer–seller negotiations. Journal of Innovation & Knowledge, 1(1), 51–61. https://doi.org/10.1016/j.jik.2016.01.014
Rubinstein, A. (1982). Perfect Equilibrium in a Bargaining Model. Econometrica, 50(1), 97–109. https://doi.org/10.2307/1912531
The art of haggling. (2010, November 24). https://www.bbc.com/travel/article/20101122-travelwise-the-art-of-haggling
Thomson, W. (1994). Chapter 35 Cooperative models of bargaining. In Handbook of Game Theory with Economic Applications (Vol. 2, pp. 1237–1284). Elsevier. https://doi.org/10.1016/S1574-0005(05)80067-0
