Modified Tournament Model Based on Perceived Wage

Abstract

In this paper, we combine the relative satisfaction and relative deprivation stemmed from wage comparison to form the relative perception as the integrated influence factor on the individual's utility function, which is the most different point from the former tournament theory studies. We introduce the relative perception into the tournament model and then analyze the Nash Equilibrium of the output competition game based on this modified model. Consequently, some new findings are obtained. Firstly, we find the relative perception could affect the utility of workers as similar as what the wage dispersion does. What's more, the income-utility sensitivity can also affect the decision of workers to choose the effort level. According to what is found in this study, the subjective perception should be paid enough attention to since it could affect the worker both in utility and consequent action. Besides, the wage policy should design properly and the differences in subjective sensitivity to relative perception or the proportion of income or perception among workers should be taken into account when the wage strategy is made.