The Complexity of Cooperation between Shareholder and Manager: Computational Experiments Using Agent-based Modeling and Simulation

Abstract

This paper aims to study the complex cooperation between shareholder and manager on the basis of agent-based modeling and simulation. The shareholder and manager were in the prisoner's dilemma, then repeated game between them under bounded rationality assumption were simulated on computer, and their adaptive behaviors in the repeated game were studied. Results show shareholder and manager with equal status tend to cooperate with each other in repeated game. However, the betrayal and control still exist during the whole process, reflecting the complexity of cooperation. "Tit for tat" strategy is the optimal strategy. When shareholder and manager have unequal status and there is misunderstanding between them, shareholder with dominant position can obtain greater benefits. Manager can obtain some benefits in early period of repeated game if he/she chooses to betray shareholder, but loses more benefits in the long run. If shareholder uses "two tits for one tat" strategy and manager uses "one tit for two tats", they tend to cooperate with each other and a balance of interests between them can be achieved during repeated game, resulting in a win-win situation.