During recession, management graduates if not placed in good organisations face dilemma, should they accept bad job offer or wait for good ones?
If they accept bad job offer, then they are struck with it at least for few months (if they end up signing bond, then many more months). Secondly, in many institutes, if you accept a job, then you are not eligible to apply for another job.
But remaining unemployed means stress and loss of self-esteem.
Question is how long should you wait for good job, before taking a bad one?
Game theory offers a solution for making decision in such situations called as backward induction.
As the name suggests, solution is obtained by working backwards.
Let us suppose every month; you can apply for one good job and one bad job. Chances of success are 50% (you are selected for either good job or bad job). If selected for good job, the game ends, but if not selected, you have two options- accept bad job and end unemployment or reject bad offer and try for good job next month.
Mathematical model for decision making works like this.
Suppose you can afford to keep looking for good job for 6 months. Good job offers Rs. 100 per month and bad job offers Rs. 40 per month.
In month 6, value of taking good job is Rs.100, value of taking bad job is Rs. 40, and value of rejecting bad job is Rs.0. It makes sense to take bad job as Rs.40> Rs.0
In month 5, value of good job is Rs. 200 (Rs.100 of month 6 + Rs.100 of month 5), similarly value of bad job Rs. 80. Since there is equal probability of getting either of them, then value of waiting is calculated as 50% of Rs. 100, plus 50% of Rs. 40. i.e. 50+20= Rs.70. Makes sense to take bad job as Rs.80 > Rs. 70
In month 4, value of good job is Rs.300, and value of bad job is Rs.120, while value of waiting is value of offer at month 5, i.e 50% of Rs.200 and 50% of Rs.80, which is 100+40 i.e Rs. 140. Since Rs. 140> Rs. 120, it makes sense to reject bad job and apply for good job in month 5.
So one can keep rejecting bad jobs till month 4, post which accept bad job.