Employers dilemma
On wikipedia one can read about the prisoners dilemma. The classical prisoner's dilemma (PD) is as follows:
The dilemma is that it is best for both to cooperate, but in practice most will choose not to because they can't thrust that the other will cooperate it is thus safest to rat the other one out.
Inspired by thought from the previous post I suggest a Employers dilemma: The economy goes up and down. Sometimes demand is high and there is a lot to do, and sometimes demand is low and there is little to do. Should the employer keep an employee in bad times or fire him? Likewise an employee has the option of staying in good times or quit and work for a company that pays better.
So for this thought experiment we consider each part have two choices. The employer has the choice "keep" and "fire". The employee has the choice "stay" and "quit". Over a certain time were the economy goes up and down the combined benefit for both employer and employee will be best if employer chose "keep" and employee choose "stay".
So cooperation is the best choice for both. However for the employer it is very tempting to fire the employee in bad times. He will make more money if the employee stays in the good times but is kicked out in the bad times. Likewise it is very tempting for the employee to quit in the good times and stick around in the bad times.
If employer and employee can't trust each other they have to play their safest card which is "fire" and "quit".
As mentioned in the wikipedia the prisoners dilemma can be played as an iterative game. Meaning one can make choices based on how the other player played in the previous game. It shows that in games were players chose to screw each other early on quickly degenerates into a game were nobody ever cooperates. The most successful strategy is to try to cooperate in the start and then retaliate if someone doesn't.
If one views the workplace is an iterative game of this type. It is clear that to foster cooperation which is the best for all one has to go forward with a good example early.
An assumption in the game is that cooperation has the largest total benefit, but is that true? I believe it is reasonable to assume that. If you can trust your employee to stay you can also invest a lot of resources in training of that employee and make him/her much more productive. This means the employer makes more money and he/she can thus pay the employee a higher wage. Even if there was no benefit for extensive training any job requires some training and having to retrain people all the time because of high turnover is not economical.
The game might explain why cultural traits are hard to change. If the American workplace corresponds to a iterative prisoners dilemma game were people are used to getting screwed by the other one would be stupid to play the cooperation card. Anyone who does will lose because nobody else does it, and they will soon revert back to screwing the others. In a game of many players what is the best strategy depends on what most do. So in e.g. Japanese work place were cooperation is the norm, screwing the other might be a benefit, but for most cooperating will still be worth doing because the majority is already doing it.
Thus a culture will quickly be self enforcing. Making changes might require great sacrifice without any guarantees of success. E.g. you will have to let yourself get screwed repeatedly hoping that in the end it will change other peoples behavior. But if the other people have become too cynical they will view you as stupid or naive and continue to screw you.
Two suspects, A and B, are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both stay silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a two-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. However, neither prisoner knows for sure what choice the other prisoner will make. So this dilemma poses the question: How should the prisoners act?
The dilemma is that it is best for both to cooperate, but in practice most will choose not to because they can't thrust that the other will cooperate it is thus safest to rat the other one out.
Inspired by thought from the previous post I suggest a Employers dilemma: The economy goes up and down. Sometimes demand is high and there is a lot to do, and sometimes demand is low and there is little to do. Should the employer keep an employee in bad times or fire him? Likewise an employee has the option of staying in good times or quit and work for a company that pays better.
So for this thought experiment we consider each part have two choices. The employer has the choice "keep" and "fire". The employee has the choice "stay" and "quit". Over a certain time were the economy goes up and down the combined benefit for both employer and employee will be best if employer chose "keep" and employee choose "stay".
So cooperation is the best choice for both. However for the employer it is very tempting to fire the employee in bad times. He will make more money if the employee stays in the good times but is kicked out in the bad times. Likewise it is very tempting for the employee to quit in the good times and stick around in the bad times.
If employer and employee can't trust each other they have to play their safest card which is "fire" and "quit".
As mentioned in the wikipedia the prisoners dilemma can be played as an iterative game. Meaning one can make choices based on how the other player played in the previous game. It shows that in games were players chose to screw each other early on quickly degenerates into a game were nobody ever cooperates. The most successful strategy is to try to cooperate in the start and then retaliate if someone doesn't.
If one views the workplace is an iterative game of this type. It is clear that to foster cooperation which is the best for all one has to go forward with a good example early.
An assumption in the game is that cooperation has the largest total benefit, but is that true? I believe it is reasonable to assume that. If you can trust your employee to stay you can also invest a lot of resources in training of that employee and make him/her much more productive. This means the employer makes more money and he/she can thus pay the employee a higher wage. Even if there was no benefit for extensive training any job requires some training and having to retrain people all the time because of high turnover is not economical.
The game might explain why cultural traits are hard to change. If the American workplace corresponds to a iterative prisoners dilemma game were people are used to getting screwed by the other one would be stupid to play the cooperation card. Anyone who does will lose because nobody else does it, and they will soon revert back to screwing the others. In a game of many players what is the best strategy depends on what most do. So in e.g. Japanese work place were cooperation is the norm, screwing the other might be a benefit, but for most cooperating will still be worth doing because the majority is already doing it.
Thus a culture will quickly be self enforcing. Making changes might require great sacrifice without any guarantees of success. E.g. you will have to let yourself get screwed repeatedly hoping that in the end it will change other peoples behavior. But if the other people have become too cynical they will view you as stupid or naive and continue to screw you.
Labels: economics, employee, employer, Japan, loyality, prisoners dilemma, trust, USA
posted by Adam Smith at 15:20
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