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Game Theory by Mark L. Burkey

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Chapter 9

Corporate Games II

Games Against Your Employees

I don’t want to belong to any club that will accept people like me as a member.1

—Groucho Marx

Correctly using information about potential and current employees is one of the most important keys to success for a firm. When it comes to adverse selection, we are mostly concerned with figuring out which potential employees we want to hire or assign to a particular task. When it comes to moral hazard, we are thinking about what problems can occur with employees after they join the firm. As always, in game theory we are keeping an eye on how choices and reactions are interrelated.

9.1 Adverse Selection: Signaling and Screening

In general, the solution to adverse selection problems is to learn ...

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