USING THE ASPIRATION CORE TO PREDICT COALITION FORMATION

Abstract

This work uses the defining principles of the core solution concept to determine not only payoffs but also coalition formation. Given a cooperative transferable utility (TU) game, we propose two noncooperative procedures that in equilibrium deliver a natural and nonempty core extension, the aspiration core, together with the supporting coalitions it implies. As expected, if the cooperative game is balanced, the grand coalition forms. However, if the core is empty, other coalitions arise. Following the aspiration literature, not only partitions but also overlapping coalition configurations are allowed. Our procedures interpret this fact in different ways. The first game allows players to participate with a fraction of their time in more than one coalition, while the second assigns probabilities to the formation of potentially overlapping coalitions. We use the strong Nash and subgame perfect Nash equilibrium concepts.