Application of Game Theory to Conflict Management in a Construction Contract

Abstract

Interest has recently grown in the application of game theory (GT) to solve a number of diverse problems in the field of construction. The use of GT by a general contractor (GC) of construction works to indicate the best strategy leading to winning court proceedings in a situation of conflict with investor (IN), has not been investigated until now. Thus the aim of this paper is to indicate the optimal strategy from the GC viewpoint in a conflict situation with the IN. The article presents a list of the most common causes of conflict between parties of a construction work contract, defines the background of the problem and the cause of the dispute, and subsequently the authors generate a theoretical model of the game. Based on the analyzed game model, the expected payoffs for players were calculated and the probability boundary value determined in making the GC apply the indicated strategy. The study results show that while the probability of issuing a judgment favorable for the GC is at least equal to 0.69 it is justified to use an aggressive strategy. The analysis also confirms that from the financial perspective, litigation in most cases of conflicts in the area of construction should be the ultimate choice.