The Art of Strategy A Game
Theorist's Guide to Success in
Business & Life
Karan Balaji S- 2021H1540810P
Pratik Gupta- 2021H1540809P
Shrey Sharma - 2021H1540825P
Title:
The Art of Strategy A Game Theorist's
Guide to Success in Business & Life
Author:
Avinash K.Dixit and Barry J.Nalebuff
About
Introduction
The branch of social science that studies strategic decision making is called game theory.
A game is a situation of strategic interdependence: the outcome of your choices (strategies) depends upon the choices
of one or more other persons acting purposely.
The decision makers involved in a game are called players, and their choices are called moves.
The interests of the players in a game may be in strict conflict; one person’s gain is always another’s loss.
https://www.gothamtg.com/blog/game-theory-in-real-life-partnerships
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Ten Tales of Strategy
1.Pick a number
2. Winning by Losing
3.The Hot Hand
4.To Lead or Not To Lead
5.Here I Stand
Ten Tales of Strategy
6. Thinking Strategically
7.Buffett’s Dilemma
8. Mix Your Plays
9. Never give a Sucker an even bet
10.Game theory can be dangerous to your health
Game Solvable by Backward Reasoning
There are two kinds of Strategic Interactions one is sequential and another is simultaneous.
Sequential - Peanuts comic strip
Simultaneous - Prisoner’s Dilemma
Sometimes both , for example football.
The general principle for sequential-move games is that each player should figure out the other players’ future responses and
use them in calculating his own best current move.
Look forward and reason backward
Most strategic situations involve a longer sequence of decisions with several alternatives at each.
Game Solvable by Backward Reasoning
DECISION TREES AND GAME TREES
A tree diagram of the choices in the game sometimes serves as a visual aid for correct reasoning in such games.
Prisoners’ Dilemmas and How to Resolve Them
If you have a dominant strategy, use it.
The prisoner's’ dilemma is an even more special game—not just one player but both (or all) players have
dominant strategies.
Resolving Dilemma
The players caught on the horns of this dilemma have strong incentives to make joint agreements
to avoid it. For example, the fishermen in New England might agree to limit their catch to preserve the fish
stocks for the future. The difficulty is to make such agreements stick, when each faces the temptation to
cheat,
Prisoners’ Dilemmas and How to Resolve Them
HOW TO ACHIEVE COOPERATION
1.Detection of cheating: Before cheating can be punished, it must be detected. If detection is fast and
accurate, the punishment can be immediate and accurate.
2.Nature of punishment: Next, there is the choice of punishment. Sometimes the players have available
to them actions that hurt others, and these can be invoked after an instance of cheating even in a
one-time interaction.
3.Clarity: The boundaries of acceptable behavior, and the consequences of cheating, should be clear to a
prospective cheater.
4.Certainty: Players should have confidence that defection will be punished and cooperation rewarded
A Beautiful Equilibrium
Look for an equilibrium
A pair of strategies in which each player’s action is the best response to the other’s. If there is a unique
equilibrium of this kind, there are good arguments why all players should choose it.
If there are many such equilibria, one needs a commonly understood rule or convention for choosing one
over the others.
Choice and Chance
● Do a game always have winners and losers?(Games of
Pure conflict)
● Prisoner’s Dilemma(everyone loses or wins)
● Randomness in choice.
● Minimax Theorem
● Do the minimax theorem works in real life?
● The game of Stone, paper and scissors: Child’s Play
Child’s Play
What would game theory recommend? This is a zero-sum game, and
revealing your move in advance can be disadvantageous. If Andrew chooses
just one pure move, Stan can always make a winning response and hold
Andrew’s payoff down to–1.
● Betting Industry(71.53 USD)
● Chess Game
● Backtracking algorithms.
● World RPS Championship.
How to act Randomly?
● MIXING STRATEGIES IN MIXED-MOTIVES GAMES.
Strategic Moves
When you are top of your game, change your game.
● Microsoft and HTC.
● Changing the game
● Strategic moves.
● Commitments
● Threats and Promises
● Warning and assurances
● Clarity and certainty.
● Example of Cold war and infinite game.
Making Strategies Credible
● Reputation
● Cutting off Communication
● Always leaving a rival with hope.
● Breaking the promises into smaller pieces.
●
The eightfold path of credibility
1. Write contracts to backup your resolve.
2. Establish and use reputation
3. Cut off communication
4. Burn Bridges behind you
5. Leave the outcome beyond your control
6. Move in small steps.
7. Develop credibility through teamwork
8. Employ mandated agents
● Contracts(The ABC Primetime program on dieting)
● Reputation( Tata)
● Cutting off Communication (Snapchat)
● Burning bridges behind you(Kodak)
● Leaving the Outcome Beyond your control
● Moving in steps
● Teamwork
● Mandated Agents
What’s the book’s
main message? Use
this slide to concisely
state it.
