The Nash Bargaining Solution

By Doug Kidder and Vince O’Brien

Doug Kidder


Vince O'Brien


In patent litigation, the ruling against the 25% Rule has led some plaintiff's experts to search for a methodology to replace it. Some of these experts are putting forward claims based on a 50/50 split of profits by claiming that it is the result of the Nash Bargaining Solution. This is not only a misreading of Nash's work; the economic community has not accepted that Nash Bargaining is a good predictor of outcomes in the real world. The 50/50 split posited by Nash requires a set of assumptions that are not true in actual negotiations. One valuable insight in Nash Bargaining is that the parties are negotiating over a surplus that is equal to the benefits achievable from cooperating minus the sum of the payoffs each side is able to get without cooperating.

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