Exercise 3.2 A three-man board, composed of A, B, and C, has held hearings on a personnel case involving an officer of the company. This officer was scheduled for promotion but, prior to final action on his promotion, he made a decision that cost the company a good deal of money. The question is whether he should be (1) promoted anyway, (2) denied the promotion, or (3) fired. The board has discussed the matter at length and is unable to reach unanimous agreement. In the course of the discussion it has become clear to all three of them that their separate opinions are as follows: • A considers the officer to have been a victim of bad luck, not bad judgment, and wants to go ahead and promote him but, failing that, would keep him rather than fire him. ⚫ B considers the mistake serious enough to bar promotion altogether; he'd prefer to keep the officer, denying promotion, but would rather fire than promote him. ⚫ C thinks the man ought to be fired but, in terms of personnel policy and morale, believes the man ought not to be kept unless he is promoted, i.e., that keeping an officer who has been declared unfit for promotion is even worse than promoting him. PROMOTE KEEP FIRE A: best middle worst B: worst best middle C: middle worst best Assume that everyone's preferences among the three outcomes are fully evident as a result of the discussion. The three must proceed to a vote. Consider the following voting procedure. First A proposes an action (either promote or keep or fire). Then it is B's turn. If B accepts A's proposal, then this becomes the final decision. If B disagrees with A'a proposal, then C makes the final decision (which may be any of the three: promote, keep or fire). Represent this situation as an extensive game with perfect information. (Use utility numbers from the set {1,2,3}.)
Exercise 3.2 A three-man board, composed of A, B, and C, has held hearings on a personnel case involving an officer of the company. This officer was scheduled for promotion but, prior to final action on his promotion, he made a decision that cost the company a good deal of money. The question is whether he should be (1) promoted anyway, (2) denied the promotion, or (3) fired. The board has discussed the matter at length and is unable to reach unanimous agreement. In the course of the discussion it has become clear to all three of them that their separate opinions are as follows: • A considers the officer to have been a victim of bad luck, not bad judgment, and wants to go ahead and promote him but, failing that, would keep him rather than fire him. ⚫ B considers the mistake serious enough to bar promotion altogether; he'd prefer to keep the officer, denying promotion, but would rather fire than promote him. ⚫ C thinks the man ought to be fired but, in terms of personnel policy and morale, believes the man ought not to be kept unless he is promoted, i.e., that keeping an officer who has been declared unfit for promotion is even worse than promoting him. PROMOTE KEEP FIRE A: best middle worst B: worst best middle C: middle worst best Assume that everyone's preferences among the three outcomes are fully evident as a result of the discussion. The three must proceed to a vote. Consider the following voting procedure. First A proposes an action (either promote or keep or fire). Then it is B's turn. If B accepts A's proposal, then this becomes the final decision. If B disagrees with A'a proposal, then C makes the final decision (which may be any of the three: promote, keep or fire). Represent this situation as an extensive game with perfect information. (Use utility numbers from the set {1,2,3}.)
Chapter14: Transaction Costs, Asymmetric Information, And Behavioral Economics
Section: Chapter Questions
Problem 4.9P
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Transcribed Image Text:Exercise 3.2 A three-man board, composed of A, B, and C, has held hearings on a
personnel case involving an officer of the company. This officer was scheduled for
promotion but, prior to final action on his promotion, he made a decision that cost the
company a good deal of money. The question is whether he should be (1) promoted
anyway, (2) denied the promotion, or (3) fired. The board has discussed the matter at
length and is unable to reach unanimous agreement. In the course of the discussion it
has become clear to all three of them that their separate opinions are as follows:
• A considers the officer to have been a victim of bad luck, not bad judgment, and
wants to go ahead and promote him but, failing that, would keep him rather than
fire him.
⚫ B considers the mistake serious enough to bar promotion altogether; he'd prefer
to keep the officer, denying promotion, but would rather fire than promote him.
⚫ C thinks the man ought to be fired but, in terms of personnel policy and morale,
believes the man ought not to be kept unless he is promoted, i.e., that keeping an
officer who has been declared unfit for promotion is even worse than promoting
him.
PROMOTE
KEEP
FIRE
A:
best
middle
worst
B:
worst
best
middle
C: middle
worst
best
Assume that everyone's preferences among the three outcomes are fully evident as a
result of the discussion. The three must proceed to a vote.
Consider the following voting procedure. First A proposes an action (either promote
or keep or fire). Then it is B's turn. If B accepts A's proposal, then this becomes the
final decision. If B disagrees with A'a proposal, then C makes the final decision (which
may be any of the three: promote, keep or fire). Represent this situation as an extensive
game with perfect information. (Use utility numbers from the set {1,2,3}.)
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