Game Theory at Workplace – Stay or Quit
Source: https://economics.virginia.edu/news/using-game-theory-salary-bargaining
While many people switch jobs throughout their careers, some will decide to remain at the same company they were first hired in for their entire career. Some decide to switch jobs because of pay, benefits, and company culture. Some decide not to switch jobs because they are content with their current one, or there is a fear of adjusting to a new environment when they’re so used to the one they currently work at. According to the article linked above, it’s tricky to determine whether to stay and your manager potentially give you a raise, or to leave from a work environment that you are already accustomed to. While the article also goes into salary bargaining as a factor in helping someone decide whether to stay or to leave, the example discussed later focuses on pay raise as the primary factor in someone’s decision to stay or to leave. This connects to the material from class as it is similar to the Prisoner’s Dilemma 2 by 2 matrix where there are different payoffs depending on what each player uses. In the context of this blog, the two players are the employee and the manager.
Based on the material learned in class, it is clear that the upper left (1,1) and the bottom right (1,0) cells from the diagram are pure strategy Nash equilibrias. For the upper left cell payoffs, if the employee chooses to stay and the manager likes working with the employee and wants to incentivize the employee to stay by giving a raise then it’s a win-win for both players, and thus the payoff is +1 and +1 for both. For the bottom right cell, if the manager does not give a raise and the employee leaves, then the payoff is (1,0). This is because the employee will leave for another job that they will most likely be more satisfied with, hence the +1, but the manager does not lose anything because by not giving the employee a raise, the manager is content with letting the employee walk away, hence the 0 payoff. Therefore, there are two pure strategy Nash equilibrias because the employee choosing to stay and the manager giving a raise is a best response to each other, and the employee choosing to leave and the manager choosing to not give a raise is also a best response to each other. In terms of the bottom left cell, if the employee leaves and the manager has given a raise, it means the employee has most likely found a better job, thus the +1 payoff, whereas the manager wanted the employee to stay but was not able to, thus the -1 payoff. Similarly for the upper right cell, if the employee stays and the manager does not give a raise, then the employee’s payoff is -1 and the manager’s payoff is +1 because the company was able to retain the employee without giving a pay raise.
Overall, the best strategies are either to be offered a raise and stay or to not get a raise and leave the company for another. As mentioned earlier, it’s difficult to know when to switch jobs because there are so many variables involved other than just pay raise. Factors like work environment, work life balance, and employee benefits are some of the many other factors that come into play when deciding whether it’s better to switch jobs.
