Bargaining steps and preference types in Zeuthen-Hicks bargaining

The Zeuthen-Hicks bargaining model suggests how two parties may reach an agreement by making successive concessions. We analyze under which conditions bargaining steps are actually concessions (i.e., worsening the payoff to the conceding party) that will eventually lead to agreement on the Nash bargaining solution. We first show that if both parties have concave utility functions, then the process will converge. Then we show that considering Prospect Theory-like utility functions the Nash criterion can have multiple local optima. We present the first results of a simulation study to analyze the conditions under which this phenomenon is more frequent.