the government is deciding whether or not to make a cut in its education expendi
ID: 1207956 • Letter: T
Question
the government is deciding whether or not to make a cut in its education expenditures, and in particular to cut down teachers' salaries. The government knows that the teachers' union will oppose this move and be willing to tight by calling for national strikes. Strikes are costly for the teachers, and the government saves money because striking workers do not get any salary. Use the following decision tree to decide the optimal decision strategy for each player. Briefly explain how you reach your conclusion.Explanation / Answer
Assuming Equal Probability of all the event
If government cut the expenditure then expected Payoff =60*0.5+50*0.5=55
If government don’t cut the expenditure then expected Payoff =30*0.5+20*0.5=25
Thus the expected payoff of government is better when government cut the expenditure irrespective of if teacher union do strike or not.
If Teacher union strike, the expected payoff =0.5*20+0.5*40=30
If Teacher union don’t strike, the expected payoff =0.5*10+0.5*30=20
Thus expected payoff for teacher union is better when they strike irrespective of if government cut the expenditure or not.
Thus optimal strategy for government is to cut the expenditure and for the teacher union is to strike.
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