The Art of Strategy

by Avinash K. Dixit
Barry J. Nalebuff

Group 17
Md. Vazir Ali - 2021H1540845P
G. Manoj - 2021H1540839P
The Art of Strategy
Game
A game is a situation where players interact and respond to each others moves
with an objective in mind.

Strategy
A strategy is an action plan to win the game, taking into consideration the
behaviour and likely responses from the opponent players.

Strategic Interactions
1. Sequential
2. Simultaneous
Game Solvable by Backward Reasoning
“Look Forward and Reason
Backward”
Prisoners’ Dilemmas and How to
Resolve Them
Prisoners Dilemma
A prisoner's dilemma is a situation where individual decision-makers always have an
incentive to choose in a way that creates a less than optimal outcome for the individuals
as a group.

Dominant Strategy   Company B

A strategy that is best for a player in   30 units 40 units

a game regardless of the strategies Company A 30 units (900,900) (750,1000)

chosen by other player. 40 units (1000,750) (800,800)

Prisoners’ Dilemmas and How to
Resolve Them

How to achieve Coorperation?

1. Detection of Cheating
2. Nature of Punishment
3. Clarity
4. Certainity
5. Size
A Beautiful Equilibrium
Nash equilibrium states that nothing is gained if any of the
players change their strategy if all other players maintain their
strategy.
Strategic Moves
Such actions that change the game to ensure a better
outcome for the player taking the actions are called strategic
moves.
• Commitment
• Threats and Promises
• Clarity and Certainty
• Large Threats
• Brinkmanship
Making Strategies Credible
“A verbal contract isn’t worth the paper it’s written on” - Samuel
Goldwyn

1. Contracts
2. Reputation
3. Burning Bridges
Behind you
4. Leaving the
outcome Beyond
your control or to
chance
Interpreting and Manipulating
People may have specific intentions and to achieve them they
adapt strategy which helps them best to get what they want
• Contradicting Intentions
• Actions Speak Louder than words

Important aspects
• Signalling
• Signal Jamming
• Screening
• Example of Buying a Second Hand Car
Cooperation and Coordination
• Marks and Sports
• Route Less Travelled

• Band Wagon Effect

Examples
o QWERTY, Gasoline and
Steam

• Speeding Ticket
Auctions, Bidding and Contests
• English and Japanese Auctions
 Value
1. Private Value
2. Common Value
• Vickerey Auction
• Online Auction
Sniping

• Dutch Auction
• The Preemption Game
• War of Attrition
Voting
• Pivotal Voter
• Naive Voting

• French and Runoff Voting

• Condorcet Rules
• The Median Voter
Incentives
• Incentives For effort
 Observable Effort
 Unobservable effort
• Making a Incentive Contract
• Non Linear Incentive Schemes
• Carrots vs Sticks
Incentives
• Dimensions of Incentives
 Career Concerns
 Efficiency Wages
 Multiple Tasks
 Competition between Workers
 Motivated Workers
 Hierarchical Organizations

• Reward Work Effort