NFL Lock-out
Game theory has many different applications in the “real world” such as, social networks, travel routes, sporting events, and economics. With the recent lock-out in the NHL, I decided to look at another lockout situation that also occurred recently. The NFL lock-out of two years ago was a unique mix of sports and economics that applies nicely to game theory. In the article Game Theory Of The NFL Negotiations: Expect More Extensions by Patrick Rishe, he explains how the then recent events of the lock-out have started a chess match between the NFL owners and the NFL Players Association (NFLPA).
The main issues surrounding this lock-out were season length, revenue sharing, and the salary cap. The owners wanted to make more money by extending the season length in order to further profit from ticket sales and television contracts. However, the players believed that an extended season would increase wear and tear and lead to more injuries without more payment. The two sides also wanted to split up the revenue (some $9 billion) that the league made, each asking for a higher percentage than the other was willing to give up. Finally, the players wanted a higher salary cap in order to make more money while the owners didn’t want to pay more than they had to.
The two sides were playing a negotiating game, playing give and take with their opponent in the hope of getting the better of the deal. To represent the strategies of this game I have constructed the following overly simplified table in which both sides can either be stubborn or compromise.
In this payoff matrix the rows correspond to the NFL’s possible strategies and the columns correspond to the NFLPA’s strategies. The first entry in each box is the payoff for the NFL and the second entry is the NFLPA’s payoff. The payoffs are on a scale of zero to ten, zero being that the side got none of what they wanted, ten being they got everything they wanted, with a five meaning a perfect compromise (all values are approximations). Here we can see that if both sides stayed stubborn then negotiations would have gone to court. This would cost the NFL both financially and from a public relations standpoint and also most likely work out in the NFL’s favor based on previous court rulings. If one side compromised and the other stayed stubborn than whoever was more headstrong would have gotten more out of the deal but the other side would still have gotten some positives, at the very least there would be a season and thus some sort of revenue for both sides. Lastly, if both sides had compromised then they would get the deal done more quickly and both sides would have gotten half of what they had hoped to get. From the table constructed one can see that there is a Pure Strategy Nash Equilibrium. If both sides had played stubborn then there is no way for an individual group to better there result. Like the prisoner’s dilemma game, the Nash Equilibrium may not be the best choice (both sides compromising, which was in fact the outcome) but it is how both sides would play it only considering their own selfish gains. It is interesting to see how game theory can apply to actual dilemmas and the “game” of negotiations and how Nash equilibrium, while theoretically practical, isn’t always the outcome in the real world.
-Hemi7k77