Can Salary Negotiations Be Represented as a Game?
As more and more of us continue to apply for jobs and internships, offers will soon be hitting the table, much to a student’s excitement. The article I looked at talked about modeling negotiations as a game where players present cards valuing the expected salary for a job position. The game they modeled was interesting because the second player would get to see player one’s action before playing their action. Most games are based on the premise that neither player has any knowledge of other players’ intentions, a simultaneous game, this game appears to be sequential. Thus the article explores the differences when the company goes first or the job candidate present first. The results from this article showed that waiting for the company to present first worked out better for the candidate.
The game provides an interesting look at salary negotiations, and while it’s difficult to find a Nash equilibrium, we can find some if we know the company’s believed expectations of the candidate. Taking the game where the candidate proposes a salary first, the candidates best play would be a high salary because more money is better of course. But there is the case where the candidate presents a number too high and doesn’t get the job at all. If the high salary is not much higher than the low, it’s in the candidates best interest to low-ball the company, which the company will always accept. Thus the two pure Nash equilibrium states are both LL. When the employer presents their salary first, it is exposed to the candidate their expectations, thus the candidate should always shoot for high in this version of the game, because they can change to LL if wanted, eliminating the state where the job is not received at all.