10.2190/CN.32.4.f R6410VKT16638878 6 Labor Negotiations, Misperceptions, and Repeated Prisoner's Dilemma: A Simulation 329 341 20100302 20100302 20100302 20100302 R6410VKT16638878.pdf http://baywood.metapress.com/link.asp?target=contribution&id=R6410VKT16638878 4 Lawrence J. Haber Nicholas Malin-Adams Joseph N. Khamalah Indiana University Purdue University Fort Wayne Parties to most labor negotiations generally have dual incentives. Each party has, on the one hand, the incentive to cooperate with the other for mutual benefit (similar to gains from trade), and, on the other, the incentive to compete with the other party for as large a portion of the gains as possible. These dual incentives can be represented in the form of a game of "Prisoner's Dilemma." In this game, however, each party would have the rational incentive to pursue a non-cooperative strategy rather than to cooperate for mutual gain. Consequently, the game would predict that there would be frequent work stoppages to the detriment of both parties. This article reports on the results of a simulation of the strategy commonly called "Tit-for-Tat" when applied to a situation where "Prisoner's Dilemma" is played repeatedly without a determinant end. Preliminary results show that if the game is played a large number of times, the effect of any misperception (even at very low probabilities) on the average payoffs of each party is drastic. In fact, the parties would do almost as well by simply randomly choosing whether or not to cooperate. L. J. Haber, & J. Wellington, Public-sector collective bargaining: Lessons from game theory, <i>Journal of Collective Negotiations in the Public Sector, 30</i>:2, pp. 149-157, 2003. R. M. Axelrod, <i>The evolution of cooperation</i>, New York: Basic Books, 1984. A. K. Dixit, & B. J. Nalebuff, <i>Thinking strategically: The competitive edge in business, politics and everyday life</i>, New York: W. W. Norton and Company, 1991. T. A. Kochan, & H. C. Katz H. C. <i>Collective bargaining and industrial relations</i>, Homewood, III: Irwin, 1988. F. Elkouri, & E. A. Elkouri, E. A. <i>How arbitration works</i>, Washington, D.C.: The Bureau of National Affairs, Inc., 1985. A. Levitt, Arthur Levitt Report on NHL's Finances (2004), accessed August 15, 2006 <a target="_blank" href='http://www.nhlcbanews.com/main.html'>http://www.nhlcbanews.com/main.html</a> M. K. Ozanian, The National Hockey League is hemorrhaging money, but the economics of owning a team can still be quite good (2004), accessed August 15, 2006 <a target="_blank" href='http://www.forbes.com/free_forbes/2004/1129/124.html'>http://www.forbes.com/free_forbes/2004/1129/124.html</a>