A probabilistic theory of coalition formation in n‐person sidepayment games

This paper describes the central‐union theory, which offers a new approach to the formation of coalition structures in cooperative, sidepayment, superadditive n‐person games. This theory treats formation of coalition structures as a probabilistic, endogenous process. Fundamental to this process is the new concept of coalition structure candidate set. For any given coalition structure, the predicted probability of formation is a function of two variables: (1) whether the coalition structure is a member of the coalition structure candidate set (coalition structures not in the candidate set will not form) and (2) the extent to which players accept that coalition structure. Players’ acceptance, in turn, depends on differences among players in the level of satisfaction regarding the allocation of payoffs within the coalition structure.

Key words:

• Coalition
• union
• coalition structure
• coalition formation
• union formation
• central‐union theory
• n‐person games
• sidepayment games
• cooperative games
• game theory