Integration of game theory with equity theory: a rationale for compromise between opposing parties

In the United States, tension between management and frontline workers has grown, stronger public approval of labor unions demonstrating a need for more employee representation and fairness at work. Given that a substantial number of workers are in frontline positions, it is important that organizations develop an understanding of how these workers will respond to negative events and especially during a crisis. This paper integrates game theory and equity theory to analyze these potential conflicts. Game theory provides a mathematical model for interactions among agents and requires those actors to be purely rational. Equity theory encapsulates perceptions of fairness based on what they receive from their organization relative to what they put in. By integrating these theories, this paper aims to explore beyond the assumption of rationality game theory dictates by incorporating considerations of fairness and equity. The analysis will consist of two scenarios demonstrating how adherence to equity theory could lead to a better result than game theory would predict. This paper seeks to bridge the gap inherent to game theory and connect it to the realities of human decision-making; this is accomplished through chapters reviewing relevant management and game theory literature, investigating management theories surrounding equity and fairness, and analyzing two constructed scenarios using game theory. The findings demonstrate to organizations that it is critical to adhere to equity theory in order to encourage later cooperation in their employees, particularly during a crisis.