Using the Nash Bargaining Solution to Decide How to Spend Money
Article: http://time.com/4867730/relationships-money-tool/
Wellesley College Professor Oscar Fernandez has recently written a book called “The Calculus of Happiness” in which he uses different mathematical principals to improve people’s ability to make decisions. One such example in the book is a tool that Professor Fernandez made to address disputes about how a couple should split a certain amount of money, perhaps by putting it into savings or by spending it on a vacation. He created an interactive tool based on the Nash Bargaining Solution that asks each person to quantify two things: how happy the person would be if they received all the money and how happy the person would be if no deal was made and neither person was able to spend money on what they wanted, both on a scale from one to ten. The tool even has clever features such as not being able to rate their happiness about no deal higher than the happiness of getting to spend all the money.
This tool works because of the Nash Bargaining Solution. In the case with two people, their only two options are to either to split the money, or make no deal. This is why Fernandez wanted to collect both those data points. To calculate the quality of a split/deal, the percent that each person gets is multiplied by their degree of happiness if they got all of it. Then it subtracts the baseline “no deal” happiness. This then gives the happiness level for both people and the tool wants to calculate how much money to give to each person to make the happiness levels equal. This process is slightly different from the one we learned in class because the set up is a little different. Instead of people having a set power in the relationship, they rate their happiness at different extreme outcomes. Also, the network is really just two people. Because the Nash Bargaining Solution still works for a situation that is quite different from the one we learned it class, we can really see how applicable the Nash Bargaining Solution is to a multitude of different circumstances.