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The Art of Strategy: A Game Theorist'S Guide To Success in Business and Life

Sequential decision trees involve looking forward and reasoning backward to determine the optimal strategy. In the prisoner's dilemma, confessing dominates not confessing regardless of the other player's action. Tit for tat involves cooperating initially and then defecting only if the other player defects, allowing players to respond immediately. Nash equilibriums exist in every game where players choose the best responses based on their beliefs about others' actions. Determining the optimal equilibrium requires strategic action from each player based on predicting others.

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84 views11 pages

The Art of Strategy: A Game Theorist'S Guide To Success in Business and Life

Sequential decision trees involve looking forward and reasoning backward to determine the optimal strategy. In the prisoner's dilemma, confessing dominates not confessing regardless of the other player's action. Tit for tat involves cooperating initially and then defecting only if the other player defects, allowing players to respond immediately. Nash equilibriums exist in every game where players choose the best responses based on their beliefs about others' actions. Determining the optimal equilibrium requires strategic action from each player based on predicting others.

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Quỳnh Mỹ Vũ
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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THE ART OF STRATEGY: A GAME THEORIST’S

GUIDE TO SUCCESS IN BUSINESS AND LIFE


1.SEQUENTIAL
DECISION TREES
Rule: Look forward and reason backward

Coopertate
$100 profit for
Entry Newcleaners

Fastcleaners

-$200k loss for


Newcleaners Price Newcleaners
War

$0 profit
No entry

(1/2) 100.000$ - (1/2)200.000$ = -


$50.000
2. SIMULTANEOUS
PRISONER’S DILEMMA
Rule: If you have dominant strategy, use it

Best choices for both is to confess,


regardless of what the other suspect
does.
TIT FOR TAT
Do unto others as they have done to you

- Begin with cooperation and just only defect if the rival defect, cause many further steps thus
players can response to the rival immediately

-Replay rival choices


NASH EQILIBRIUM

- Every game has at least a equilibrium

- To get to a Nash Equilibrium, all players have to choose best responses – which is
relatively straightforward.

- Moreover, they all have to have correct beliefs about what the other players will be
doing in this game
If A goes first:
- A chooses Ad, B will get 5 or 0 => B chooses Ad
to get 5 => equilibrium (Ad;Ad) equivalent to
(10;5)
-A chooses Not Ad, B will get 8 or 2 => B chooses
Ad to get 8 => equilibrium (Ad; Not Ad)
equivalent to (15;0)

If B goes first:
-B chooses Ad, A will get 10 or 6 => A chooses
Ad to get 10 => equilibrium (Ad; Ad) equivalent
to (10;5)
-B chooses Not Ad, A will get 15 or 9 => A
choose Ad to get 15 => equilibrium (Ad; Not Ad),
equivalent to (15;0)
Sequential Simultaneous
As an example above, in case B goes first, its Nash Equilibriums of example above are
max value of payoff is 8 if A chooses Not Ad (Ad;Ad) and (Ad; Not Ad) which equivalent to
and B chooses Ad. However, in the shoes of A, (10;5) and (15;0).
If B chooses Ad, A will chooses Ad as well to
maximize their profit (10). At this time, the To choose the best equilibrium, it requires
equilibrium will be (Ad;Ad) equivalent to action from each player. For example, If B
(10;5). sees A hires more Marketing employees, can
If B chooses Not Ad, A will still choose Ad guess that A will chooses Ad => B can choose
cause the equilibrium will be (Ad; Not Ad) Ad to optimize the profit.
equivalent to (15;0).
=> To get the best profit, B has to choose Ad
as the same as A to get equilibrium (Ad;Ad)
equivalent to (10;5)

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