This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

What is Strategic Thinking Game Theory Applications to Business Applications to Life

Strategic Thinking

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Survivor: Picking Sticks Rules:

12 Sticks During a player’s turn each person can pick 1-3 sticks. Last person to move wins

12 11 10 9 8 7 6 5 4 3 2 1

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Modified Picking Sticks Game Rules:

14 Sticks During a player’s turn each person can pick 1-3 sticks. Last person to move wins

12 11 10 9 8 7 6 5 4 3 2 1 14 13

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

The Cambridge May Ball Casino Night

Roulette Play Money Winner gets ticket to the ball In the final round Barry has $700, and Eva $300

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

The Cambridge May Ball Roulette

Numbers 0-36 0 is green 1-36 odd numbers are Red, even are black

Betting $1 on Red wins with prob 18/37 and pays $2

Betting $1 on a multiple of 3 wins with probability 12/37 and pays $3.

What should each person do?

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Forecasting Stock Performance Bob is a veteran predictor of stocks. His

predictions appear on a popular Web-Site Each Monday Morning.

Jim is unknown If his stocks perform better than Bob’s he may

attract attention If his stocks perform the same or worse than

Bob’s he remains unknown. When should Jim post his picks on his web-

site? How should he make his choices?

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

America’s Cup A two boat sailing race The Australian boat starts out behind

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

It’s your move Charlie Brown Lucy: “I’ll hold the ball, you come running

up and kick it Charlie Brown” Charlie Brown “This year I’m gonna kick

the ball out of the universe.”

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

New Cleaners & Fast Cleaners Vacuum Cleaners

Existing company Fast Cleaner’s Vacuums Potential Entrant: New Cleaners

Post Entry choices for Fast Cleaners Accommodate entry Fight a price war

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

New Cleaners & Fast Cleaners

Newcleaners

Enter

Keep Out

Fast Cleaners

Accommodate

Price War

$0 to New Cleaners

$-200,000 to New Cleaners

$100,000 to New Cleaners

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

New Cleaners & Fast Cleaners

Newcleaners

Enter

Keep Out

Fast Cleaners

Accommodate

Price War

$0 to New Cleaners

$-200,000 to New Cleaners-$100,000 to Fast Cleaners

$100,000 to New Cleaners$100,000 to Fast Cleaners

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Bargaining: Ice-Cream Pie Take-it-or-leave-it offers The pie is melting

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Politics and the High Road

Obama

Romney

Romney

High Road

High Road

High Road

Low Road

Low Road

Low Road

Obama Wins

Romney hasa chance

Obama Wins

Romney hasa chance

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Dominant Strategies Professor Jones choosing the right grail Baseball: 2-outs, 2-strikes, 3-balls, runner

on first Terminology

Dominant Strategy Dominated Strategy

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Time and Newsweek

Newsweek’s ChoicesAIDS Budget

Time’s Choices

AIDS 35* / 35** 70* / 30**

Budget 30* / 70** 15* / 15**

*Magazine sales for Time; ** Magazine sales for Newseek

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

A different situation Newsweek’s Choices

AIDS Budget

Time’s Choices

AIDS 42* / 28** 70* / 30**

Budget 30* / 70** 18* / 12**

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

FootballDefense’s Strategies

Counter Run

Counter Pass Blitz

Offense’s Strategies

Run 3* 7* 15*

Pass 9* 8* 10*

* Offense’s expected yardage gain

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Missile warfare

A I

AmericanShip

IraqiShip

B

C

D

E

F

G

H

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Table of Hits and MissesIraqi Strategy

AMERICAN

1-IFCB 2-IFEB 3-IFED 4-IFEH 5-IHGD 6-IHED 7-IHEB 8-IHEF

1-ABCF H O O O O O O H2-ABEF O H H H O H H H3-ABEH O H H H O H H H4-ABED O H H H H H H H5-ADGH O O O H H O O O6-ADEH O H H H O H H H7-ADEF O H H H O H H H8-ADEB H H H H O H H H

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Dominated StrategiesIraqi Strategy

AMERICAN

1-IFCB 2-IFEB 3-IFED 4-IFEH 5-IHGD 6-IHED 7-IHEB 8-IHEF

1-ABCF H O O O O O O H2-ABEF O H H H O H H H3-ABEH O H H H O H H H4-ABED O H H H H H H H5-ADGH O O O H H O O O6-ADEH O H H H O H H H7-ADEF O H H H O H H H8-ADEB H H H H O H H H

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Reduced Table of Hits and Misses

Iraqi Strategies

AmericanStrategies

IFCB IHGD

ABED O H

ADEB H O

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Nash Equilibrium Definition Feast: Too many equilibria

Standards: Driving on the right side of the road.

Phone connection breaks off: Who calls back Famine

Re-examine the Missile game Mixed Strategies

Summary of Concepts Sequential Games

First Mover Advantage Second Mover Advantage Solve the game backwards

Simultaneous Move Games Look for Dominant Strategies If there are no Dominant Strategies, eliminate

Dominated Strategies, and check for dominant strategies in the simplified game.

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

Summary Continued… More on Simultaneous move games

If all else fails use Nash Equilibrium Each player selects a strategy that maximizes his

payoff given the strategy selected by the other player.

Characteristics of Nash Equilibrium Sometimes there is more than one Sometimes there is no Nash Equilibrium in pure

strategies. There is always a Nash Equilibrium in mixed strategies

This slideshow was written by Ken Chapman, but is substantially based on concepts from Thinking Strategically by Avinash K. Dixit and Barry J. Nalebuff, W.W. Norton 1991.

2*,5**2*,4**8* ,2**2* ,3**7* ,2**Mary picks 2

1* ,1**0* ,15**12* ,11**1* ,14**11* ,12**Mary picks 1

Bob picks E

Bob picks D

Bob picks C

Bob picks B

Bob picks A

2* ,5**2*,4**8* ,2**2* ,3**7* ,2**Mary picks 2

1* ,1**0* ,15**12* ,11**1* ,14**11* ,12**Mary picks 1

Bob picks E

Bob picks D

Bob picks C

Bob picks B

Bob picks A

*Mary’s payoff, ** Bob’s payoff

Mary and Bob are playing the game described in the table below. Bob picks the columns (either A, B, C, D or E while Mary picks the rows (either 1, or 2). Use concepts from class to pick the likely outcome of this game if their choices are made non-cooperatively and simultaneously.

Statement 1: Non-cooperative Nash equilibrium is the economists favorite solution to use in games because you can always find a single predicted outcome to any situation.

Statement 2: When we say that a player has a “Dominant” strategy, we mean that no matter what his/her opponent does, that player will always make the same choice.

a. Statement 1 is true, but 2 is falseb. Statement 2 is true, but 1 is falsec.Both are trued.Both are false

Alice and Bob are playing the game described in the table below. Bob picks the rows (either A, B, or C, while Alice picks the columns (either D, E, or F). Use concepts from class to pick the likely outcome of this game if their choices are made non-cooperatively and simultaneously.

a. Bob will pick B and Alice Db. Bob will pick C, and Alice F.c. Bob will pick C and Alice E.d. Bob will pick A and Alice D.e. None of the above are the solution to this problem

14*,9**12*,6**10*,8**C15*,5**10*,4**12*,7*B8*,3**7*,2**8*,12**A

FED

14*,9**12*,6**10*,8**C15*,5**10*,4**12*,7*B8*,3**7*,2**8*,12**A

FED

Bob picks Row A, B, or C

Alice picks columns D, E, or F

* Payoff to Bob, ** Payoff to Alice

Bob and Alice are going to play the non-cooperative sequential game described below. Bob picks first choosing A or B. Alice picks second, picking C or D. After Alice picks, Bob gets to pick once again, choosing either E or F. Payoffs marked with * are for Bob and ** for Alice. What is the likely outcome of this game according to concepts discussed in class?

10*,6**

8*,20**

E

F

6*,15**

7*,33**

8*,1**

4*,2**

9*,4**

2*,16*** Payoff to Bob, ** Payoff to Alice

Bob

Bob

Bob

Bob

Bob

Alice

Alice

A

B

C

D

C

D

E

F

E

F

E

F

Statement 1: “In a two-player, simultaneous-choice game if strategy A is better for every possible choice of your opponent than strategy B, then we say that you have a dominant strategy.”

Statement 2: “If there are no dominant strategies, and no dominated strategies in a game, then there will always be a single Nash equilibrium outcome to help predict what will happen.”

a. Statement 1 is true, but 2 is falseb. Statement 2 is true, but 1 is falsec. Both statements are correct.d. Neither statement is correct

Statement 1: “In the ‘casino night’ story from Dixit and Nalebuff by the last spin of the roulette wheel in the evening Barry had $700 and Eva had $300. Sine the money amounts were significant only if you had the most at the end of the evening, Barry’s best strategy was to wait for Eva to place her bet, and bet the same amount on the same event.”

Statement 2: “In the ‘casino night’ story mentioned above, Eva’s best choice was to put her $300 on a multiple of 3 so that she would receive $900 if she won. Realizing this she should place her bet immediately and hope Barry didn’t know how to respond.”

a. Statement 1 is true, but 2 is false.b. Statement 2 is true, but 1 is false..c. Both statements are correct.d. Both statements are false.

Bob’s ChoicesA B C

Edna’s Choices

D 42* / 29** 31* / 40** 45* / 50**

E 31* / 16** 42* / 51** 55* / 28**

F 32* / 28** 19* / 38** 42* / 48**

*Money received by Edna; ** Money received by Bob

Which of the following statements best describe the situation in the simultaneous choice game depicted above?

a. Strategy F is a dominated strategy for Edna, while strategy A is a dominated strategy for Bob.b. Strategy E is a dominated strategy for Edna, while strategy A is dominated strategy for Bob.c. There are no dominated strategies in this game.d. Strategy F is a dominated strategy for Edna, while strategy c is a dominated strategy for Bob.