Game Theory Approach to Decision-Making Analysis of Dispute Resolution

Abstract

The issues of disputes in construction projects are unavoidable and result in many conflicts that impact the project’s performance, contribute to project cost overruns, and may lead to several delays in the project’s schedule. The outcome of a dispute is dependent on the stakeholders’ actions and preferences. To this end, this paper aims to model the interdependent decision-making of the owner and contractor during project disputes in the construction industry via game theory, based on the decision-makers’ criteria in evaluating the outcome of the dispute. As such, this paper sheds light on possible agreements before arbitration, avoiding judiciary disturbance and aiming to save time and cost and reduce the burden on the national courts. This may strengthen the principle of participation against competition through project execution and finding the optimal settlement values within the dispute procedures. The paper utilizes the analytic hierarchy process (AHP) to account for the heterogeneous criteria of the different players, which ultimately impact their decision-making and the equilibrium of the game. The model is able to define the equilibrium point that satisfies both players in a dispute using game theory. Ultimately, this model will impact the construction industry by providing a framework for estimating the claim’s possible outcome. This paper contributes to the body of knowledge by providing practitioners with a transformable model that can be used for different heterogenic stakeholders, to predict the expected outcome of a dispute.