Question

4. Individual Problems 15-4 After graduation, you enter salary negotiations for your first job. Suppose the potential employer (employer A) has two choices: to offer you a high salary or to offer you a low salary. You may then accept or reject whatever offer is made. The payoffs, as well as the dedision tree, are depicted in the following figure. Employee Accept Employee: 96 Employer A: 76 Employee Reject Employee 0 Employer A O igh Offer Employe Employee Accept Employee: 76 Employer A $6 Low Employee Reject Employee 0 Employer A O Type here to search Employee Reject Employee 0 FHigh Ofer Employer A 0 Employee Accept Employer A 96 ◆ Employee: 76 Low Employee Reject Employee: C0 Employer A 0 Assume this is a sequential gae If employer A offers a low salary, you, as the employee, are best served by and employer A would earn a payoff of-▼ . Alternatively, if employer A offers a high salary, you are best served by case, you would earn a payoff of and employer A would earn a payoff of . With this information, employer A will choose to make a offer, since it will yield a higher payoff for him, based on what you (the employee) will subsequently choose. the offer. In this case, you would earn a payoff of ▼ _ the offer. In this Suppose you have a competing job offer from employer B. Accepting this job offer gives a payoft of 86. During your negotiations with employee A, you have the option of taking this offer from employer B, and employer A is aware of this offer (as well as the payoff to you). Given this competing offer the negotiation with employer A is depicted in the following figure O Type here to search Homework (Ch 15) Suppose you have a competing job offer from employer B. Accepting this job offer gives a payof of 86. During your negotiations with employee A have the option of taking this offer from employer B, and employer A is aware of this offer (as well as the payoff to youj. Given this competing offer the negotiation with employer A is depicted in the following figure: Employee Accept Employee: 96 Employer A: 76 Employee Reject Employer A 0 Employee 86 Offer Employee Accept Employee 76 Employer A 96 Employer Low Employee Reject Employee: 86 Employer AO True or False: with ths competing job offer, your threat to reject employer A's offer if it is low is now

Answer 1

if employer a gives, low offer, employee will compare between his payoff from his available payoffs of accept and reject i.e. 76 and 0. In order to maximize his payoff, he will choose accept.

Similarly, if a high offer is made, employee will compare his payoffs (96 vs 0) and accept the offer.
Since the employee will choose accept, the employer will make a low offer in order to maximize his payoff (96 in low offer and 76 in high offer).

Assume this is a sequential gane If employer A offer a low salary, you, as the employe, are best served by accept, the offec in this case, you would earn a payotf of 76 and employer A would earn a payoff of 96 Alternatively, if case, you would eam a payof of 96 and employer A would earn a payoff of 76 with this information, employer A will hoose to make a lOWofter, since it will yield a higher payof for him, based on what you (the employee) will subsequenty choose. employer A offers a high salary, you are best served by accept, the offer.In this

In a competing job offer case, in case of a low job offer, the employee will maximize his payoff by comparing accept (=76) and reject (=86). Since the payoff from rejection is higher, he'll choose reject, therefore making the threat to reject the offer credible.