Discussion questions Week five: In Chapter 15 Strategic Games, we have learned t

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Discussion questions

Week five:

In Chapter 15 Strategic Games, we have learned that a player chooses a strategy that is the best response to the rival’s strategy in Nash equilibrium and receives payoffs. Please answer questions (a) and (b) after reading Application.

Application: Consider that you are an executive in charge of human resource issues at General Dynamics. Suppose a UAW (https://uaw.org/) labor contract with General Dynamics is being renegotiated. Some of the many issues on the table include job security, health benefits, and wages. Would you be better off (i) letting the union bear the expense of crafting a document summarizing its desired compensation, or (ii) making the union a take-it-or-leave-it offer?

Questions:

(a) Find two players and your two strategies

(b) Explain your preferred strategy between (i) and (ii) by using “payoffs”

Hint: The application does not show any numerical values of payoffs. You can explain what your payoff means (e.g., higher utility, saving time, profits etc.) and why your chosen strategy gives you higher payoff.

Explanation / Answer

a) The two parties will be - Management and Union

The strategies for the management here will be - Letting union submit their desired compensation OR preparing the compensation terms for the union to be offerred which may be negotiated or terminanted by the union.

b) Consider the following matrix-

If the Management chooses to ducument the terms itself and do not give union this chance of making their own terms then it could lead to benefits like they may get higher utiity as they will be making terms according to their prefernces and if the union would have prepared then the terms will be not good for managemnet but it has some drawbacks like it involves time, cost to prepare such document of terms.

Secondly if it allows the union to prepare the document the benefit woudl be saved time and cost but the terms owuld not be preferrable for the management.

It can be sensed that even if the management saves time by not making document it will still spare some cost and time to negotiate on the trems prepare by the union. On other hand the profit that they will get (in terms of lesser cost of labor) through making the document itslef would be much higher than saving time and cost.

Hence the strategy of 'making the union a take-it-or-leave-it offer' would be choosen.

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