Labor Negotiations, Misperceptions, and Repeated Prisoner's Dilemma: A Simulation

Lawrence J. Haber
Nicholas Malin-Adams
Joseph N. Khamalah

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DOI: 10.2190/CN.32.4.f

Abstract

Parties to most labor negotiations generally have dual incentives. Each party has, on the one hand, the incentive to cooperate with the other for mutual benefit (similar to gains from trade), and, on the other, the incentive to compete with the other party for as large a portion of the gains as possible. These dual incentives can be represented in the form of a game of "Prisoner's Dilemma." In this game, however, each party would have the rational incentive to pursue a non-cooperative strategy rather than to cooperate for mutual gain. Consequently, the game would predict that there would be frequent work stoppages to the detriment of both parties. This article reports on the results of a simulation of the strategy commonly called "Tit-for-Tat" when applied to a situation where "Prisoner's Dilemma" is played repeatedly without a determinant end. Preliminary results show that if the game is played a large number of times, the effect of any misperception (even at very low probabilities) on the average payoffs of each party is drastic. In fact, the parties would do almost as well by simply randomly choosing whether or not to cooperate.

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