A prospect theory Nash bargaining solution and its stochastic stability

We consider the long-run outcomes of bargaining games when players obey prospect theory. extend evolutionary model Young (1993) to a two-stage Nash demand game. Two simultaneously choose whether exercise an outside option in first stage and play game second stage, which will be reached only if neither player exercises option. address influence on stochastically stable division reference-dependent preferences where reference point is value show that consistently differs from solution under expected utility Inspired by this, we propose theory solution, coincides with division.