Game Theory
Tutorial 1
Questions
Exercise 1 The manager of a multinational company and the union of work-
ers are preparing to sit down at the bargaining table to work out the details
of a new contract for the workers. Each side has developed certain proposals
for the contents of the new contract. Let us call union proposals “Proposal
1”, “Proposal 2” and “Proposal 3”, and manager’s proposals “Contract A”,
“Contract B” and “Contract C”. Both parties are aware of the financial as-
pects of each proposal–contract combination. The reward matrix is:
Proposal Contract
A B C
1 8.5 7.0 7.5
2 12.0 9.5 9.0
3 9.0 11.0 8.0
Reward matrix
These values are the contract gains that the Union would secure and also the
cost the company would have to bear.
Is there a clear–cut contract combination agreeable to both parties, or will
they find it necessary to submit to arbitration in order to arrive at some sort
of compromise?
Exercise 2 Consider the same problem as in Example 1, but with the fol-
lowing reward matrix:
1
