Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. $\begin{array}{c}
\text { Worker }\
\text { Manager}
\begin{array}{|l|l|l|}
\hline & \text { Work } & \text { Shirk } \
\hline & & \
\text { Monitor } & -1,1 & 1,-1 \
\hline \text { Don't } \
\text { Monitor }& 1,-1 & -1,1\
\hline
\end{array}\end{array}$ Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one shot to reach an agreement.Management has the ability to announce what it wants first,and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is a perfect equilibrium?
A) Management requests $49.99, and the labor union accepts $0.01.
B) Management requests $25, and the labor union accepts $25.
C) Management requests $0, and the labor union accepts $50.
D) None of the preceding answers is correct.

Question

Suppose that you are a manager.You are considering whether or not to monitor employees with the payoffs in the normal-form game shown below. $\begin{array}{c}
\text { Worker }\
\text { Manager}
\begin{array}{|l|l|l|} 
\hline & \text { Work } & \text { Shirk } \
\hline & & \
\text { Monitor } & -1,1 & 1,-1 \
\hline \text { Don't } \
\text { Monitor }& 1,-1 &  -1,1\
\hline
\end{array}\end{array}$ Management and a labor union are bargaining over how much of a $50 surplus to give to the union.The $50 is divisible up to one cent.The players have one shot to reach an agreement.Management has the ability to announce what it wants first,and then the labor union can accept or reject the offer.Both players get zero if the total amounts asked for exceed $50.Which of the following is a perfect equilibrium?
A) Management requests $49.99, and the labor union accepts $0.01.
B) Management requests $25, and the labor union accepts $25.
C) Management requests $0, and the labor union accepts $50.
D) None of the preceding answers is correct.

Quizplus · Accepted Answer

In a perfect equilibrium, management would aim to keep as much of the surplus as possible while still offering the labor union just enough to accept the deal. Requesting $49.99 and leaving $0.01 for the union ensures management maximizes its share without causing the union to reject the offer, as rejecting would leave the union with nothing.

Suppose That You Are a Manager Management and a Labor Union Are Bargaining Over How Much