I think it’s a terrible idea to automatically adopt an equilibrium notion which incentivises the players to come up with increasingly nasty threats as fallback if they don’t get their way. And so there seems to be a good chunk of remaining work to be done, involving poking more carefully at the CoCo value and seeing which assumptions going into it can be broken.
I’m not convinced there is any real problem here. The intuitive negative reaction we have to this “ugliness” is because of (i) empathy and (ii) morality. Empathy is just a part of the utility function which, when accounted for, already ameliorates some of the ugliness. Morality is a reflection of the fact we are already in some kind of bargaining equilibrium. Therefore, thinking about all the threats invokes a feeling of all existing agreements getting dissolved sending us back to the “square one” of the bargaining. And the latter is something that, reasonably, nobody wants to do. But none of this implies this is not the correct ideal notion of bargaining equilibrium.
I’m not convinced there is any real problem here. The intuitive negative reaction we have to this “ugliness” is because of (i) empathy and (ii) morality. Empathy is just a part of the utility function which, when accounted for, already ameliorates some of the ugliness. Morality is a reflection of the fact we are already in some kind of bargaining equilibrium. Therefore, thinking about all the threats invokes a feeling of all existing agreements getting dissolved sending us back to the “square one” of the bargaining. And the latter is something that, reasonably, nobody wants to do. But none of this implies this is not the correct ideal notion of bargaining equilibrium.