Pareto Optimal Allocation in Coalitional Games with Exponential Payoffs

Shapley value is a popular way to compute payoffs in cooperative games where the agents are assumed to have deterministic, risk-neutral (linear) utilities.This paper explores a class of Multi-agent constantsum cooperative games where the payoffs are random variables. We introduce a new model based on Borch’s Theorem from the actuarial world of re-insurance, to obtain a Pareto optimal allocation for agents with riskaverse exponential utilities. This allocation problem seeks to maximize a linear sum of the expected utilities of a set of agents and the solution obtained at this optimal value naturally maximizes the social welfare of the grand coalition. The four main axioms of the Shapely Value, namely, nullity, additivity, symmetry and efficiency are satisfied by this solution. We show the correspondence of our solution to the Shapley value. As a result we can directly obtain the Shapley value from the allocation values obtained at the Pareto optimum as the individual utility achievements of the grand coalition.