Book Review: Bargaining Theory with Applications

Book: Bargaining Theory with Applications by Abhinay Muthoo.
Four stars out of five.

Let me start by start by saying that this book is actually four stars or zero stars, depending on the audience. This is true for most books, though, so I err on the positive side.

Let’s start with the reasons you should not read this book. You might read the title and think “Gee, I have always wanted to learn about bargaining theory” and therefore decide to read the book. Bad move. This book is completely inaccessible. In the introduction, the author says that the reader only needs a decent understanding of subgame perfect equilibrium to get a lot out of it. This is a gross underestimate–you need at least a full year of game theory to get anything substantial out of the book and two years if you really want to understand it. Even then you will probably scratch your head from time to time. (In the conclusion, the author also says the book “has centered on some basic, elementary, models.” I found that quite humorous.)

The phrase “death by notation” comes to mind as you read this. The author says he intends the book for graduate level economists, and it shows. Variables are often defined once and then never interpreted a second time during a proof. You will often find yourself going back to try to figure out what all of the notation means. (This is a problem for just about all game theory texts, though, which is why I stick to mostly English in my textbook.)

The book also lacks adequate illustrations and figures. Game trees and strategic form matrices help readers understand the flow of the interaction. Figures here are rare and are often baffling. Without them, you will be left to look back at the notation, which has its own problems. (Like before, lack of sufficient illustration is a problem for just about all game theory texts.)

On a personal level, the author spent way too much time discussing the Nash bargaining solution. Personally, I find the Nash bargaining solution to be uninteresting except at the very basic level. Your mileage may vary. And, if you are like me, then you can just skip those sections like I did. So I can’t really fault it for this.

Despite all that, you should read this if you are interested in bargaining and have a good understanding of game theory. I don’t know of any books that are more thorough than it. I originally picked it up for some background on my risk aversion and sports contracts paper, and it was extremely useful. The author covers just about every type of bargaining game you will find in the literature with many variations of each model. So if you want to learn about bargaining, you should spend a few hours reading through it.

For practical purposes, chapter four (bargaining with risk of breakdown), chapter seven (bargaining over bargaining), and chapter nine (incomplete information) are the most useful. Four and seven probably have the most interesting application possibilities. I might reread the seventh chapter again at some point and think about how to relate it to international relations. We seem to have a lot of bargaining models in IR without much discussion of why bargaining protocols should take one particular form and not another. Perhaps this will lead to some publishable research.

I leave you with the following takeaway point: if you follow my work, you would probably enjoy reading this book, and it may qualify as required reading for you; if you found this page by randomly searching the internet for reviews of the book, you should think twice.