Using decision analysis, evaluate the truck drivers’ negotiation problem and provide advice to both parties regarding their decision-making process. Clearly state any assumptions you make during your analysis.
The Correct Answer and Explanation is:
To evaluate the truck drivers’ negotiation problem using decision analysis, we must consider the choices, outcomes, and associated payoffs (monetary or non-monetary) for both parties — the truck drivers (or their union) and the employer (trucking company). We’ll assume that this is a wage negotiation or labor contract dispute, a common context for such problems.
Assumptions:
- Drivers are deciding between accepting the company’s offer or going on strike.
- The company is deciding between offering a wage increase or standing firm.
- Both parties aim to maximize long-term utility (wages vs. costs).
- A strike will reduce short-term income for drivers and increase costs for the company (lost business, reputational damage).
- There’s uncertainty about how long a strike would last and whether the public would support the drivers.
Decision Tree Summary:
Drivers’ Choices:
- Accept Offer → Immediate moderate wage increase.
- Reject and Strike:
- Company yields later → Larger wage gain but short-term losses.
- Company resists → Long strike, net loss for drivers.
Company’s Choices:
- Improve Offer → Increased labor cost but avoids strike.
- Stand Firm:
- Drivers cave in → Company saves costs.
- Strike prolonged → High financial and reputational costs.
Advice Based on Decision Analysis:
For Truck Drivers:
- Estimate the probability of the company yielding under strike pressure. If high, a strike might be worth the short-term cost. Otherwise, negotiate within reason.
- Consider building public support and financial backing (strike funds) to strengthen leverage.
For the Company:
- Use expected value calculations: compare strike costs to the long-term cost of higher wages.
- If the cost of a strike exceeds a moderate wage increase, it’s rational to offer more upfront.
Conclusion (Correct Answer):
Both parties should use expected value and scenario analysis to guide decisions. Compromise through integrative negotiation — where mutual gains (e.g., bonuses tied to performance) are possible — is often more rational than adversarial postures that lead to costly strikes.
