Advantage of Game Theory Application in the Work of Trade Unions, Business and Politics - Term Paper Example

Game theory has been a working paradigm applied to the negotiations and interactions of interactive people groups. The introduction of game theory in the areas of ethics and even moral decision making is not entirely a new development, as elements of game theory can be found in the work of Thomas Hobbes and David Hume (see Gauthier 1969; Vanderschraaf 1998)) Prior to their work the foundation of modern game theory was laid by John Nash (Nash, 1950) Nash broke through the previous theory limitation, which is often referred to as a zero sum game negotiations by recognizing that negotiating parties can work together to each reach a maximized outcome, which may in the end be greater than the sum of the parts which are initially brought to the negotiation table. Game theory, as it applies to labor unions, trade negotiations and strikes, can be a helpful tool for both labor and management. Game theory helps the parties understand the course of their negotiations from an outside viewpoint. While the trade negotiations can be, and often are, filled with emotional hot buttons for both parties, game theory gives the parties tools to use to evaluate their prospective positions, and weigh the possible outcomes of their negotiations, and hence arrive at an agreement which is mutually beneficial for all parties, a win - win situation if you will. Too often, trade negotiations can devolve into a win-loose argument, in which the management is seen as taking from the unions in order to gain for itself, or vice versa. When the trade talks head in this direction, the parties seldom are able to make positive progress toward goals which can benefit both management and labor. Only be reaching toward a cooperative agreement can they create a positive work environment, and a financially healthy company. To understand how game theory benefits labor negotiations, one must first understand the five elements of game theory The game theory is defined as an interaction between a number of parties in which the following five elements are present. 1. The players: there are a defined number of players with defined roles. Game theory must identify how many players there, and whether or not natural elements outside the persons play a role, or if chance can play a role in the decisions. 2. The conditions or roles of the players: The players must be understood, along with their possible decisions. In other words there should be a minimal number of known decisions which the parties can undertake in order to apply game theory. 3. Information: the information which the players have with which to make decisions should be known. In other words, all the variables in the negotiations must be known in order to assist the parties using game theory. 4. Payoff Consequences: the parties must know what the course of their decisions will produce. Parties must know and understand what will be the consequences of choosing A or B or C in the negotiations. 5. Player preferences: Finally, a thorough knowledge of the preferences which the players would like to pursue should also be on the table. (see Duffy, 2003) When these 5 elements are known by the participants in the trade negotiations, then game theory can help them move toward effective resolution of their issues, as well has help them understand the payoff and the costs of their respective decisions. Game theory is often called a means for making moral decisions. The theory seeks to find a solution which works toward the benefit of the greatest number of people, maximizing all parties return. Thus, the theory's outcome has been compared to morality in decisions making. However, one way to undermine the effectiveness of this theory is for parties to come to the table with the assumption that their particular perspective or their desired outcome is the moral high ground. This assumption by one of the parties is a sure path toward defeating the effectiveness of game theory. According to Hardin (1988, 2003, negotiators should be wary of moral theorists that claim universality for their position, and those who believe in the universally applied moral superiority for their specific recommendations. This approach to negotiations often will derail the process. When one party holds this moralistic believe system, the party will often miss the opportunity to maximize return for all parties in order to satisfy their moral imperative belief system. Thus, as these factors are applied to contract negotiations and the possibility of strikes the following process should be charted. By applying the five factors of game theory, and seeking to guard against the moralistic interpretation of the parties desires, game theory can be helpful in guiding the parities toward a resolution which is mutually beneficial for each side. In a trade negotiation setting, the parties must know who is engaged in the agreement process. If the parties understand that only the union and management are going to engage in the process, then each has a firm understanding of the limits and boundaries of their positions. If the union is not able to move toward attainment of their goals, they are able to use the threat of strike in order to motivate the management to further engage their demands. However, if the management responds to a threat of strike with the use of temporary workers, who can move into the position of a permanent replacement labor force, the union no longer has a 'trump card' to play by calling for a strike. The union is put on a position of loss by using a strike rather than motivating the management to attain gains for their prospective position. In this case the negotiations move from what is referred to as an equilibrium strategy to a mixed strategy. No longer are there 2 parties which can exist in equilibrium with each other, balancing give and take. The introduction of a third party (or possibility of a third party) moves the parties to consider other options, thus changing the definition of point number 2 and 3 of the game theory. Case and point, and a turning point in the relative power of labor unions to use the strike as a motivational influence against management, occurred in the early 1980's. In 1981, the air traffic controllers union in the United States went on strike for better pay and better working conditions. The union felt that a strike was the only way to get the federal government to listen to their desires. According to the game theory, the unions thought they knew the players at the table, the options, and the goals of each side. However, they miss-judged the key negotiator. President Reagan considered the PATCO strike to be illegal. This federal union did not have the legal authority to strike. And in what was one of the shortest press conferences on record, President Reagan stepped to the microphone and said "Your Fired" to the gathered union members and representatives. Joe Simonetta of Hoover's Manufacturing and Industry team, said that "the air traffic control strike of 1981 has become a symbol of the decline of organized labor in the U.S. (2000)" The unions over gauged their influence and power in the negations, and failed to consider all the options which could be considered based on their positioning. According to the Workmen's Circle Arbiter Ring, "The Air Traffic Controllers' strike of 1981 marked a symbolic turning point in labor-management relations. President Reagan's ability to fire the strikers without serious consequences to air safety was a clear message in labor- management relations. Although the power to replace strikers had always been there, an economy in recession and high unemployment made the use of that power feasible. (1997)" John Nash's work on game theory used a graph to illustrate the application. He also was able to design an equation which could be used in order to evaluate the different positions of the negotiating parties, which is the source of the graph. His work illustrates that different parties, with different goals, will often be far apart, and far from any agreement if they stay fixed on securing only their goals. Like two people standing in opposite corners of a room, they have no chance of reaching an agreement. The zero sum game negotiation process which preceded modern game theory said that if one person gained ground, the other person necessarily lost ground. However, modern game theory states, and helps the parties identify that if one party begins walking toward the other, leaving his or her corner of the room and making at least incremental progress toward the other, the person isn't loosing ground, but making progress toward an agreement which will benefit both parties. The second person likewise leaves his or her corner of the room, and makes a path in the direction of his negotiating partner. The two may not make a straight line toward each other. The goal of the one is not to necessarily move to the other person's original position. At some point, the two parties do approach each other. While their respective paths may only arc toward each other for a time, it is game theory that helps the parties see that this approach is the purpose of the negotiations. The point at which the two negotiators are the nearest is the most beneficial for them to make an agreement. The result will be that each party has gained the most possible for their position while loosing the least amount. Thus the parties can embrace the settlement as an agreement to both of their benefit, in both of their interest. In conclusion, game theory has helped opposing parties approach negotiations in a spirit which seeks the best interests in both parties rather than seeking to forge an agreement by force which benefits one party while harming the other. Game theory has helped unions and management to look beyond what can be moralistic imperatives which hinder their ability to talk. Parties have been able to avoid the settling conflicts as Ronald Reagan did, by eliminating their opponent. By gaining a perspective base on the mutual benefit of all parties involved, parties have been able to work for better negotiations, and more favorable outcomes. Works Cited Duffy, John. 2003. Introduction to Game Theory. Retrieved 3/28/2006 from University of Pittsburg website, http://www.pitt.edu/jduffy/econ1200/Lectures.htm Gauthier, David. 1967. Morality and Advantage. Philosophical Review 76:460-475. Hardin, Russell. 1988. Bargaining For Justice. Social Philosophy and Policy 5:65-74. -----. 2003. Indeterminacy and Society. Princeton: Princeton University Press. Mclaughlin, M. August 1999. Wall Street's dirty Secret: 1990's boom based on smashing of labor in the 1980's. Retrieved 10/28/02 from World Socialist Web Site, www. wsws.org http://www.wsws.org/articles/1999/aug1999/frie-a24_prn.shtml Nash, John. 1950. The Bargaining Problem. Econometrica 18 (2):155-162. Simonetta, J. 2000. Reagan Fires Air-Traffic Controllers. Retrieved 10/28/02 from Hoovers Online: The Business Network http://www.daddison.com/portfolio//hoov/century03.html Unknown Author September 5, 1997. The Forward Rebalancing The Labor-Management Relationship. Retrieved 10/28/02 from the Workmen's Circle Arbeter Ring web site http://www.circle.org/forward/970905.htm Vanderschraaf, Peter. 1998. The Informal Game Theory in Hume's Account of Convention. Economics and Philosophy 14 (2):215-247. Verbeek, Bruno, Morris, Christopher, "Game Theory and Ethics", The Stanford Encyclopedia of Philosophy Winter 2004 Edition, Edward N. Zalta(ed.), URL = . Read More