Title: Optimal wages to an optimistic contractor who has time inconsistent preferences
Speaker: Prof. Rahul Marathe
Venue: Room LC 201, Lecture Hall Complex
Time: 2:00 pm, Thursday, March 12, 2015
Abstract: We study the behavior of an optimistic contract manufacturer who has time inconsistent preferences. We develop mathematical models from the OEM’s perspective to analyze the imperfect memory of the contractor who selects his beliefs by suppressing any bad information to increase the anticipatory utility. This tendency of self-deception would lead to cognitive dissonance. Though this is a common behavior of humans, it has not been used to model the reward schemes in manufacturing, service and project environment. We model the present bias of the contractor using a cost salience factor and this factor is private information to the contractor. Using the Bayesian game model, we calculate the optimal wages which mitigates the procrastination of a present biased contractor. We obtain interesting compensation structures to handle this behavior of contractors.
About the Speaker: Dr. Rahul Marathe is an Associate Professor in Department of Management Studies at IIT Madras. His research and teaching interests are in stochastic modelling, data analysis, game theory, and decision making under uncertainty.