I'm taking a course on game theory and am faced with this prompt. What's most rational?
Person X is due for a raise at her company. Her company is offering her two options:
Option A is to continue receiving the same salary and stay within the bonus pool.
Option B is to increase her salary to match her bonus amount last year, but opt out of the bonus pool moving forward. Her bonus last year was $30,000. Therefore, her new salary would be $30,000 more than what it was.
The track rate of previous bonus pools are unknown.
I think the most rational way to approach this is by looking at each option's worst case scenario and to take the one with the least worst. Option A's worst case scenario is there's no bonus and player X receives no extra money. Option B's worst case scenario is player X still earns $30,000 more.
The thing that's holding me up is the potentially infinite reward Option A gives because the bonus pool is not capped. How much should that option be considered, if any at all, since the past performance of the bonus pool is an unknown?